Warren Buffett once said, "When it's raining gold, reach for a bucket, not a thimble." Believe it or not, it's raining gold right now. And that's especially the case for several great healthcare stocks.
What I mean is that the stock market's pullback is causing quite a few stocks to trade at attractive prices. Whether you're looking for solid dividend stocks, value stocks, or high-growth stocks, there are plenty of buying opportunities. Three healthcare stocks I'd buy right now are AbbVie (ABBV -1.03%), Celgene (CELG), and Teladoc Health (TDOC -0.07%).
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1. AbbVie
I like dividends -- and AbbVie claims one of the best dividends in healthcare. The big pharma company's dividend currently yields over 4.5%. AbbVie has increased its dividend by 140% since being spun off from Abbott Labs in 2013.
AbbVie also looks like a bargain right now. Its shares trade at only 9.5 times expected earnings. The stock has come under pressure for several reasons this year. The overall market decline has dragged AbbVie down, of course. However, investors have also been concerned about how the company's top drug, Humira, will fare with healthcare changes being proposed by the Trump administration and with biosimilar competition in Europe starting this month.
Rick Gonzalez, AbbVie's CEO, stated in July that "there were probably more positives than there were negatives" for AbbVie with the Trump administration's proposed changes. I suspect that he's right. And while Amgen has begun to market its biosimilar to Humira in Europe, over two-thirds of the drug's revenue (and even more of its profits) are made in the U.S.
Meanwhile, sales continue to soar for AbbVie's cancer drug Imbruvica and hepatitis C drug Mavyret. The company has other drugs ready to step up, such as cancer drug Venclexta and endometriosis drug Orilissa. AbbVie's pipeline also appears to be very strong, with immunology candidates risankizumab and upadacitinib leading the way.
2. Celgene
Celgene doesn't pay a dividend, but it possesses another attribute that I really like -- a dirt-cheap valuation. The biotech stock trades at roughly 7.5 times expected earnings. But Celgene really shines when you factor in its growth prospects. Its price-to-earnings-to-growth (PEG) ratio is a super-low 0.47.
But is there a worrisome reason why Celgene is so cheap? And are the company's growth prospects relatively solid? At first glance, the answers to those questions might not give you a warm-and-fuzzy feeling about Celgene.
Investors have been worried that Celgene depends too much on revenue from one drug -- Revlimid -- and that the drug could lose its patent protection. They've also been concerned that Celgene's growth depends on its pipeline success -- and the biotech has had two major pipeline stumbles over the last year or so.
However, my view is that Celgene will reach settlements with drugmakers seeking to market generic versions of Revlimid, just as it has done before. I think that the drug should be safe from competition until 2022 and then only with limited volumes of generic version sales. I'm also impressed with Celgene's pipeline and expect the company will have several blockbusters on the way, including ozanimod, fedratinib, luspatercept, and liso-cel (also known as JCAR017).
3. Teladoc Health
There are two strikes against Teladoc Health. It doesn't pay a dividend. It isn't really a bargain. The company isn't even profitable yet but still claims a market cap of close to $5 billion. So why do I like Teladoc? Tremendous growth prospects. And it certainly helps that the stock is less expensive than it's been in a while.
Teladoc's revenue has skyrocketed by a compound annual growth rate (CAGR) of 75% since 2014. The company has rapidly established itself as the premier telehealth services provider. Roughly 40% of the Fortune 500 members steer their employees to Teladoc's services, which are available via phone, internet video, or mobile app.
I think that Teladoc can grow a lot more. Telehealth is more convenient for patients. Even better, though, it's less costly for payers. The company should have tremendous growth prospects as Americans' healthcare needs increase and payers -- including Medicare and Medicaid -- look for ways to control costs.
Teladoc also has significant growth opportunities in international markets. In the second quarter, nearly 16% of the company's total revenue came from international subscriptions. A year earlier, Teladoc had no subscription revenue from international markets.
Raining gold?
Is the stock market really "raining gold" right now? I think so. The key to seeing the opportunity is to have a long-term perspective.
Over the long run, AbbVie's current products (including Humira) and its pipeline candidates should allow the company to deliver solid total returns to investors. The same scenario should apply for Celgene as well. Teladoc stands to capture an even greater share of the growing telehealth market.
I'd buy any of these three healthcare stocks right now. Actually, I already owned two of them -- AbbVie and Celgene -- prior to the market pullback and scooped up shares of Teladoc recently. And like Buffett recommended, I put out a bucket instead of a thimble.
