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3 Overlooked Healthcare Stocks to Buy Right Now

By Jason Hawthorne - Updated Apr 1, 2021 at 8:12AM

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Financial media can often divert your attention away from the best investments.

In times like these, investing is exciting. Some stocks are up several hundred percent since their March 2020 lows, and it seems like the same high-flying growth stocks are in everyone's portfolios. However, it's often the stocks that consistently grow but don't get any hype that are the best long-term performers.

Align Technology (ALGN -3.84%), Repligen (RGEN -2.35%), and DexCom (DXCM -6.78%) are three companies that have been growing sales and cash flow at impressive rates for years. In a world where that predictability isn't exciting enough to garner headlines in the financial media, investors ignoring them could be missing a great opportunity to build wealth over time.

Father and son sit at a countertop and count money at home.

Image source: Getty Images

1. Align Technology

For the maker of Invisalign clear teeth straighteners, investors looking back at financial statements years from now will do a double take when they see 2020. In the five years prior, the company had been growing sales and earnings per share at 26% annually. At the height of the pandemic, during the fiscal second quarter, sales dropped a truly abysmal 41% year over year. For the full year, revenue was up 3% to $2.5 billion. That's a testament to how quickly management was able to leverage its digital platform and expand its virtual care offerings. The company also continued to invest in brand awareness and acquired a company that makes software to design dental products. These moves have positioned Align to exit the pandemic stronger than it was when it went in, and that's a high bar.

The company has essentially no debt, and prior to the pandemic was generating about $0.21 to $0.25 cents of operating profit for every dollar of sales. That's impressive for a device maker. For context, Apple's profit has been between $0.24 and $0.27 cents per sales dollar for the past several years. Unlike the $2 trillion iPhone maker, Align has a lot of room to grow. It only has a $43 billion market capitalization. Management estimates that approximately 500 million people globally could benefit from straighter teeth, and only 15 million begin treatment annually. 

Many of those people may get help sooner than anticipated. In the fourth quarter, revenue growth accelerated to 28%. Align isn't giving guidance for 2021 yet, but has mentioned that the year started off exceptionally strong. That's likely to continue as pent-up demand from people who have spent the last year looking at their own teeth on Zoom all day drives sales. With accelerating revenue, high profit margins, no debt, and a huge market opportunity, Align doesn't get nearly the attention it deserves. With the stock down about 12% from its recent highs, now may be a great time to pick up shares.

2. Repligen

Repligen makes flow systems, membranes, resins, and other tools for the development of biologic drugs. As you'd expect, business accelerated with the pandemic. COVID-related programs accounted for 13% of its $366 million in sales for 2020. That portion increased through the year, culminating in 22% of fourth-quarter revenue. Even before the pandemic, business was booming, the previous five years had seen sales compound at 33% annually. Management expects revenue this year to be 37% to 43% higher than in 2020. Further, CEO Tony Hunt has set a target for $1 billion in revenue by 2025. That's still a fraction of the $3.7 billion addressable market he estimates. So far, the company is on track to achieve it.

COVID will continue to be a tailwind for Repligen this year, accounting for between 12% and 15% of growth. Hunt is focused on expanding to meet the elevated demand. Last year, the company made three strategic acquisitions, enhancing its portfolio of single-use filtration and chromatography systems, as well as silicon assemblies. The focus on single-use processing is allowing the company to take share from competitors as customers move away from using stainless steel in their labs. That old way is less efficient because it requires intensive cleaning between batches to reduce the risk of contamination. Management has also been focused on the growing gene therapy market, where it now boasts of 75 meaningful accounts using Repligen technology.

With management's own guidance implying 22% annual top-line growth over the next five years, and a track record of capitalizing on opportunities through product development and strategic acquisitions, Repligen has a proven formula. Shareholders would agree after enjoying a 5,000% gain over the past decade. With a current market capitalization of only $10 billion, there is still plenty of room for explosive growth to reward those who don't own shares yet.

3. DexCom

DexCom makes small, wearable transmitters that send glucose measurements to a smart device every five minutes. The customizable alerts and ability to share data have allowed diabetes patients to better manage the disease without having to endure painful fingersticks. The company essentially invented the continuous glucose monitor market 21 years ago, and its reputation for precision has fended off competition from AbbVie and Medtronic. Even so, the market is big enough for more than one winner. The percentage of Americans with diabetes stands at 11%, more than double the 4.4% in 2000. Globally, it is estimated that 700 million people will have the disease by 2045.

DexCom's leadership position in that large and expanding market has produced massive growth. The company has increased sales 45% on average each year over the past decade, and shares are up 2,100% during that time. Although DexCom only became profitable in 2019, it's been producing positive cash flow since 2014. After the company posted $1.9 billion in 2020 revenue, management is guiding for 15% to 20% growth for the coming year. That's a significant slowdown from the 31% increase in 2020. However, it forecasts 25% to 30% unit volume growth, attributing the difference to the lower-priced pharmacy channel. Another drag may be the new G7 product, which will be introduced at a lower price sometime in the second half of this year after being delayed last summer.

The confounding factors should work themselves out over the next few years. The company believes sales will more than double by 2025 to between $4.0 billion and $4.5 billion. The lower price point and delay of the G7 are two reasons the stock is down 20% since its all-time high last August. For investors willing to take a longer view, the diabetes innovator is likely to reward their patience. 

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Stocks Mentioned

DexCom, Inc. Stock Quote
DexCom, Inc.
$309.62 (-6.78%) $-22.54
Align Technology, Inc. Stock Quote
Align Technology, Inc.
$269.83 (-3.84%) $-10.76
Repligen Corporation Stock Quote
Repligen Corporation
$151.05 (-2.35%) $-3.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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