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3 Surefire Stocks to Watch In The Coronavirus Pandemic

By Jim Halley – Oct 28, 2020 at 7:55AM

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COVID-19 has heightened the demand for companies that specialize in infection control.

Due to the coronavirus pandemic, it would seem that stocks of infection control companies are no-brainer investments, but it's not that simple.

While companies and healthcare facilities have become more vigilant when it comes to preventing disease, the pandemic has also considerably slowed business for some clients of infection control businesses. With fewer people traveling and eating out, the hospitality industry is bringing in less business. While hospitals are being even more careful about infection control, fewer people are visiting their physicians and dentists, so infection control business from those industries has also fallen.

But these circumstances actually present a real opportunity. As more businesses re-open, there will be a growing need for infection control expertise. This industry was already expected to grow at a 6.3% compound annual growth rate (CAGR) through 2027, according to one report published before the pandemic began.

Steris (STE 2.08%), Johnson & Johnson (JNJ 1.01%), and Cantel Medical (CMD) are three healthcare companies with infection control businesses that are worth watching.

People in a research lab.

Image source: Getty Images.

Steris is already cleaning up

Steris stock is up more than 21% year to date, and Steris recently announced it is in the process of an $850 million deal to buy Key Surgical. Steris CEO Walt Rosebrough said Key Surgical's core business of sterile processing, operating room, and endoscopy fits well with Steris's own lineup of infection prevention products, which includes surgical masks.

The company's financials have been on a nice upward trajectory, with increased earnings for nine consecutive years and increased net income for the past four years.

The company did report a 4% drop in revenue in the first quarter of 2021, but its reported net income of $88.2 million represented a 4% rise over the same period in 2020 (the company's fiscal year ends June 30). The company credited lower operating expenses and a $5 million one-time benefit from operating room integration revenue for the higher net income.

JNJ Chart

JNJ data by YCharts

Cantel Medical is ready to rebound

Cantel Medical's shares are down more than 32% year to date, but the company's problems appear strictly short-term. It has shown annual revenue growth for more than 15 years. That includes its 2020 fiscal year, which ended July 31 and included two quarters that were slowed by the pandemic.

The company makes masks, sterilants, disinfectants, cleaners, sterility assurance monitors for dental clinics and hospitals, and a host of one-time-use medical equipment to ensure sterility. With visits to the dentist, non-coronavirus trips to the hospital, and regular trips to the doctor all down, there has been less demand for Cantel's equipment.

In the fourth quarter, the company said organic revenues from its dental segment were down 20.6%, and its medical segment was down 24.8% in organic revenue.

However, things are starting to pick up. Cantel Medical said that in June and July, medical and dental procedures were running at 80% to 85% of pre-COVID numbers. The company says it is likely that it will soon have increased sales. In the past, a dentist may have used one or two masks a day. Now, they are changed after each patient.

In anticipation, the company has placed orders on eight new facemask machines to double the company's capacity from 16 million to 32 million masks a month. On Oct. 22, the company says it expects revenues in the first quarter to be $290 million to $295 million, up roughly 25% from the fourth quarter and only down 3% year over year on an organic basis.

Johnson & Johnson is already on its way back

Johnson & Johnson's shares are down only 1.8% for the year, and as evidenced by its third-quarter earnings, the company has shrugged off coronavirus headwinds.

Reported sales in the third quarter were $21 billion, a rise of 1.7% year over year, and net earnings were a reported $3.5 billion, an increase of 102.7% over the same period last year.

Johnson & Johnson is a huge company with many different segments, and infection control is just a part. The company is restarting the late-stage trial for its COVID-19 vaccine candidate, which could be a promising development for the healthcare giant. The company's biggest earnings segment is pharmaceuticals, followed by medical devices (which includes its infection control sales), and lastly, consumer health. The medical devices segment includes the company's infection risk management solutions that consult with healthcare companies. In addition, the company sells wound management products, single-use sterile implant surgical kits, and other sterile medical equipment, such as varied sutures. Its medical devices division saw a third-quarter decline of 3.3%, but that segment could easily bounce back once medical procedures increase.

JNJ Revenue (Quarterly) Chart

JNJ Revenue (Quarterly) data by YCharts

No need to put a band-aid on these companies

All three of these stocks have healthy businesses with short-term slowdowns. If you're looking for a relatively safe investment with a strong likelihood of a long-term profit, you could do much worse.

Of the three, I like Johnson & Johnson the best, because of its diversification and because it is a Dividend Aristocrat that yields 2.81%. I also like Cantel at a market cap of $2 billion, as its share price has the most room to rise. It also offers a dividend, though only with a yield of 0.21%. Steris is also a solid play and is probably the safest bet of the three, though with less potential upside.

Jim Halley owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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