Pardon the pun, but investors have received a crash course on the unpredictability of short-term stock market movements in 2020.
During the first quarter, panic and uncertainty stemming from the coronavirus pandemic chopped down the broad-based S&P 500 by 34% in just 33 calendar days. This was followed by an epic snap-back rally that saw the widely followed index recoup all it had lost in under five months. Both the decline to bear market lows and the rally to fresh highs occurred quicker than at any other time in history.
But last week, investors were sent a stern reminder that stock market volatility isn't gone just yet. In a two-day stretch to end the week, the technology-heavy Nasdaq Composite lost 6.2% of its value, with the benchmark S&P 500 dipping 4.3%. This drop could mean nothing, or it could be yet another precursor to a stock market crash.
The thing about stock market crashes and corrections is that they happen more often than you might realize. They're also an excellent opportunity for long-term investors to put their capital to work. Keep in mind that every single correction in stock market history of at least 10% has been eventually put into the rearview mirror by a bull market rally.
The question is: When a stock market crash does occur, where should you put your money?
I say, why not healthcare? The vast majority of healthcare stocks are highly defensive plays given that we don't get to choose when we get sick or what ailment(s) we develop. This creates a relatively steady stream of demand and cash flow for the entire gamut of healthcare companies.
If the latest stock market hiccup does turn into a correction or crash, here are three healthcare stocks that could be ripe for the picking.
The first healthcare stock that opportunistic buyers should consider scooping up is cancer-drug developer Exelixis (NASDAQ:EXEL).
While there are hundreds of biotech and pharmaceutical stocks to choose from, only a small sliver are actually profitable on a recurring basis. Exelixis falls into that camp. But unlike most other profitable and mature drug companies, it's still growing at a double-digit rate.
Exelixis' workhorse is Cabometyx, a therapy approved to treat first- and second-line renal cell carcinoma (RCC), as well as advanced hepatocellular carcinoma (HCC). Without getting too buried in clinical data, Cabometyx was the only second-line RCC drug to deliver statistically significant improvements in objective response rate, progression-free survival, and overall survival. It also ran circles around previous first-line RCC drug Sutent in clinical trials. With reasonably strong pricing power and an increasing number of RCC and HCC cases as diagnostics improve, Cabometyx should have little trouble growing into a blockbuster drug (i.e., $1 billion or more in annual sales).
Perhaps even more exciting are Exelixis' potential combination opportunities with Cabometyx. Even though Bristol Myers Squibb's (NYSE:BMY) cancer immunotherapy Opdivo is a direct competitor to Cabometyx, the duo of Bristol Myers and Exelixis ran a late-stage study (CheckMate 9ER) examining their two flagship cancer drugs in first-line RCC. The combination ultimately met its primary endpoint, which may give the duo an opportunity to mutually increase their share in the indication.
Investors can scoop up Exelixis for about 10 times Wall Street's forecast 2023 earnings per share, despite an expected doubling in revenue between 2019 and 2023.
You might not think to look at cannabis stocks as a safe-haven investment opportunity during a stock market crash, but marijuana has been treated as a consumer staple during this recession. That makes fast-growing, profitable pot stocks worthy of your investment dollars during a stock market crash.
The specific marijuana stock I had in mind here is vertically integrated multistate operator Trulieve Cannabis (OTC:TCNNF). On a nominal basis, no pot stock in North America is more profitable than Trulieve. Last year, the company generated almost $253 million in sales, with $86.6 million in operating income, not including any fair-value adjustments or one-time benefits.
The secret to Trulieve's success is the company's focus on the burgeoning Florida medical marijuana market. Of the company's 59 operational dispensaries, 57 of them have been opened in the Sunshine State. Whereas most multistate operators have each been putting down roots in anywhere from 10 to 20 legalized states, Trulieve has almost universally focused on dominating the Florida market.
Ultimately, this may be a smart move, with Florida on track to become the third-highest-selling legal-weed state in the U.S. by 2024. With Trulieve currently holding roughly half of the state's medical-marijuana market share, it's been able to keep its marketing costs down since it has so effectively built up its brand. This is a big reason Trulieve's profitability is unmatched in the U.S. pot industry.
Another healthcare stock to consider buying hand over fist in a stock market crash is pharmacy giant CVS Health (NYSE:CVS). While I believe it's historically cheap now (8 times forward earnings), any added downside pressure from a correction or crash would provide the perfect catalyst for long-term investors to buy in.
Whereas most healthcare companies have seen little tangible impact from COVID-19, CVS Health has witnessed a decline in front-end sales and foot traffic. The pandemic has also disrupted clinic revenue, with consumers temporarily putting off visits for vaccines or to treat minor illnesses. But these near-term weaknesses shouldn't be viewed as long-term concerns.
For CVS, one of the more exciting catalysts was the 2018 acquisition of health insurer Aetna. Typically, insurers aren't a high-growth industry. But for CVS, which deals with razor-thin retail margins from front-end sales, the organic growth potential of health-benefits provider Aetna, along with sizable cost synergies, could provide a shot in the arm of growth for CVS Health. It also doesn't hurt that CVS should be able to court Aetna's insured members to stay within its pharmacy network, which is where the company generates its juiciest margins.
Additionally, the company plans to open approximately 1,500 of its HealthHUB health clinics across the country by the end of 2021. While it's unclear if COVID-19 might push this timeline back a tad, what is clear is that management understands the importance of bringing repeat customers into its stores. HealthHUB's goal is to help patients with chronic conditions better manage their symptoms, which for CVS could mean more prescriptions to fill, increased foot traffic, and a more loyal customer base.