So far, 2019's been a pretty good year for healthcare stocks in general, but a few younger members of the sector have fallen recently. Shares of Guardant Health (GH -5.47%), Livongo Health (LVGO), and Masimo (MASI -0.67%) have outperformed in the past, but not in recent weeks, or months.
Despite the lack of seriously damaging news, all three of these top stocks are significantly less expensive than they were a month ago. Here's why they're the best healthcare stocks you can buy in October.
Image source: Getty Images.
1. Guardant Health: In the lead
This company leads the emerging market for blood-based cancer diagnostics, which is expected to reach between $50 billion and $100 billion annually, depending on who you ask. Currently, the company markets Guardant360, a test that helps oncologists choose the right targeted cancer treatment for their patients. GuardantOmni is similar, but it casts a much wider net and is used to screen patients for just about every tumor profile that researchers might be interested in.
Guardant360 and GuardantOmni are generating significant revenue now, but the company's largest potential market is still untapped. When analysts toss around big liquid biopsy predictions for Guardant, they're expecting the bulk of revenue to come from early stage cancer screening, plus recurrence monitoring for people living in remission.
More than a few companies have raised nine-figure sums to develop a blood-based cancer screen for people who don't know they have cancer. We can expect plenty of competition ahead for the early detection market and we still don't know if Lunar will be as successful as Guardant's other products. Guardant Health's a buy because Guardant360 and GuardantOmni can drive the stock in the long run even if its early detection program doesn't go anywhere.
Shares of Guardant Health have tumbled around 41% from a peak reached in August, despite posting impressive growth in the second quarter. Total revenue soared 178% year over year to $54 million, which inspired Guardant to raise expectations for 2019.
Guardant had been expecting total sales to reach between $145 million and $150 million this year, but its blood-based tests for advanced cancer patients keep gaining steam. In August, Guardant raised its expected revenue range to between $180 million and $190 million, which puts its recent stock price at around 31 times 2019 revenue expectations. That's a nosebleed multiple, but not for a company with as much room to grow as Guardant.
Livongo's suite of tools for managing chronic conditions. Image source: Livongo.
2. Livongo Health: Chronic condition management
Employers of all stripes have learned the hard way that expecting their employees to manage diabetes and other chronic conditions on their own isn't saving any money. Livongo Health uses real-time monitoring to keep an eye on blood sugar readings and reach out when someone drifts outside normal ranges.
Around 9.4% of the U.S. population had diabetes in 2015, and that number has been rising quickly. Adults who develop type 2 diabetes are generally terrible about regularly monitoring their blood sugar, taking their medication on schedule, and developing behavior patterns that lead to better health outcomes.
Livongo made its stock market debut earlier this year, and it's tumbled about 53% thanks to soaring operating expenses. Livongo is trying to expand as quickly as possible because there are a number of digital health start-ups that would like to break into Livongo's new niche, and it looks like the company's spending heavily to stay ahead of the competition. In the second quarter, revenue jumped 156% year over year to $40.9 million, but Livongo's cost of revenue and operating expenses rose 146% to a combined $55.3 million.
This is a great stock to buy now because key metrics that don't appear on an income statement have been overlooked. Livongo collects subscription revenue and the number of business entities sending in monthly payments more than doubled year over year to 720 at the end of June.
The total value of contracts signed during the second quarter tripled year over year and reached $74.2 million. That's 54% more than Livongo reported during the previous three-month period.
By the end of the year, Livongo's income statements will probably begin reflecting just how quickly the company is catching on with employers eager to lower their healthcare costs.
Masimo's remote monitoring system. Image source: Masimo.
3. Masimo: Noninvasive monitoring
Next time a healthcare provider puts that little clip on your finger that measures how much oxygen is circulating through your blood vessels, look a little closer and you'll probably see Masimo's name.
Unlike Livongo and Guardant, Masimo's been profitable for a long time. Altogether, product sales in the first half of 2019 rose 13%, and continued growth seems likely in any economic environment. That's because Masimo gives out its monitoring equipment for free in exchange for a long-term sensor-purchase agreement. Sensors and other single-use products that accompany Masimo products aren't cheap, but providers pass on those costs to their patients' insurers.
Masimo's stock has lost some ground in recent weeks, and the dip looks like an opportunity to pick up shares of a great company at a better price than usual.
Something for everyone
All three of these health stocks make great buys this month, but not for everyone. Masimo's not growing nearly as fast as Livongo or Guardant Health, but it's a lot less risky because the company's already producing a profit. Guardant and Livongo are losing money at the moment, but continued success could lead to a much larger return down the road.
