Demand for healthcare products and services isn't as highly correlated to the economy as are other industries, so given the stock market's recent volatility, and the sector's relatively defensive nature, this could be a good time to add healthcare stocks to your portfolio. We asked three Motley Fool contributors for healthcare stocks that are top of mind for them right now, and they responded with IQVIA Holdings (IQV 0.55%), PetMed Express (PETS 1.76%), and Gilead Sciences (GILD -0.84%). Read on to discover if these stocks are right for you.
People love and care for their pets
Chuck Saletta (PetMed Express): More and more, people consider their pets part of their family. Indeed, according to a survey quoted in Psychology Today, over half of pet owners consider themselves "pet parents" rather than "pet owners." With that kind of attachment to their animals, odds are good that people will pay to care for their pets, especially when they're ill.
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Enter PetMed Express, a leader in direct-to-consumer pet medicines, other pet health-support, and pet supply products. As a direct-to-consumer company, it can offer lower prices than physical retailers, though the downside is that people can't get prescriptions instantly filled for their pets' urgent medical needs. Still, PetMed Express does decent business, booking over $280 million in revenue over the past 12 reported months.
People's love for their pets gives PetMed Express a decent business, but its valuation is what makes it a compelling opportunity to consider investing in now. The company trades at around 12 times its anticipated earnings, and those earnings are expected to grow by nearly 10% on an annualized basis over the next five years. In addition, at less than $30 per share, its stock is trading near its 52-week low, suggesting that the market may have soured on its prospects.
Combine a reasonable valuation with decent prospects and souring investment sentiment, and you have a recipe for a company that might very well be worth looking at buying right now.
A hidden winner in the biotech boom
Brian Feroldi (IQVIA Holdings): With technologies such as CRISPR, CAR-T, and RNAi starting to take flight, there's a lot of reason for investors to be bullish on the future of biotech. However, given the arduous regulatory approval process, it can be exceedingly difficult for investors to pick the winners ahead of time. That's why I believe that buying IQVIA Holdings -- which was formerly known as Quintiles IMS -- is a smart way for investors to play the biotech boom.
IQVIA is the largest clinical research organization in the world. The company employs an army of scientists and regulatory experts that know exactly what it takes to bring a new drug to market. The company has become a natural partner for pharma and biotech companies of all sizes that want to give their compound the best chance possible of winning the thumbs-up.
For investors, the wonderful thing about IQVIA's business is that the company earns revenue from all phases of a drug's development, even if a compound winds up in the dust bin. Better yet, since drug development is a multiyear process, the company has a tremendous amount of visibility into its future revenue. For example, last quarter the company recorded that its backlog of projects exceeds $15 billion.
Another fact to cheer is that IQVIA still can earn revenue from a drug after it leaves the clinic. That's because the company boasts a one-of-a-kind database of healthcare information that companies can buy to help them with sales targeting. For companies that want to give their drug the best shot at commercial success -- which is every company -- this data is vital.
When this business model is placed against the backdrop of a booming biotech sector, it isn't hard to see why analysts are projecting earnings growth of more than 15% over the next five years. That's quite strong for a company that is only trading for 20 times next year's earnings estimates.
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Time to buy this beaten-up biotech bargain
Todd Campbell (Gilead Sciences): The way Gilead Sciences' shares have been trading over the past two years, you'd think the company was on borrowed time, but that's not the case. It still generates annualized sales of over $20 billion and free cash flow over $1 billion per quarter. Importantly, it has catalysts that could make adding shares now smart.
The company's declining share price has been because of slowing sales of its hepatitis C drugs. In 2014, Gilead Sciences revolutionized hep C treatment by reducing treatment duration, eliminating the need for side-effect-laden drugs like peg interferon, and delivering functional cures of nearly 100%. These drugs were so successful that, at their peak, they were producing over $4 billion in quarterly revenue.
However, a lot of that revenue was due to pent-up demand from patients with advanced disease. Once that demand waned, Gilead's addressable market shrank and that, plus new competition, has caused Gilead's hep C sales to fall to about $1 billion per quarter.
Disappointment because of declining sales (and, in turn, profit) is understandable, but Gilead Sciences remains the market leader in HIV treatment and last year's acquisition of Kite Pharma, which landed it Yescarta, a chimeric antigen receptor T-cell therapy (CAR-T) approved for certain types of B-cell lymphoma, is expanding it into cancer treatment.
Furthermore, it has potential blockbuster drugs in late-stage studies for rheumatoid arthritis and nonalcoholic steatohepatitis that could reach the market by the end of 2020, if all goes according to plan.
Gilead Sciences' second-quarter revenue was $5.6 billion, its adjusted earnings landed at $2.5 billion, and it was sitting on $31.7 billion in cash exiting June. That still makes it a market leader, and with new drug opportunities looming and a discount rack valuation, I think adding it to your portfolio now could prove profit-friendly.
