So far in 2022, the stock market has been ugly, and stocks have been hammered across the board, including healthcare stocks.
Is it possible to find some future winners in this bear market? Sure. When the world turns awful, healthcare is usually a bright spot. Upheaval in Ukraine means more healthcare, not less. COVID-19 is awful for humanity, but drug companies fighting the disease remain strong. And while bad economies can sometimes cripple healthcare stocks, the practice of medicine remains a basic necessity.
You want to stomp the bear? Buy Doximity
Taylor Carmichael (Doximity): A couple of weeks ago, I suggested that readers might want to buy shares of Doximity, the telehealth giant that was trading 60% off its highs. The company reported earnings a few days after my article, and Doximity just smacked it out of the park.
|Metric||Analyst Estimates Q3||Actual Numbers Q3|
|Revenue (up 67%)||$86 million||$97 million|
|Earnings (up 119%)||$0.19 a share (high estimate)||$0.26 a share|
|Net revenue retention rate||N/A||171%|
Since the company came public last year, it has surprised analysts every quarter. Nobody expects a high-growth tech stock to already have achieved profitability. Doximity beat analysts' profit estimates by 37% in its first quarter as a public company, trounced them by 90% in its second quarter, and then stomped them by 123% in Q3. Sooner or later, it seems to me, analysts might want to dramatically increase their Doximity profit estimates for 2022.
While the bear has been ravaging most of my highfliers so far this year, Doximity has escaped with minimal damage. In fact, the stock is actually up 16% this year.
Doximity dominates much of the virtual healthcare space, and thanks to the network effect, it would be quite difficult for any competitor to broach its moat. Eighty percent of American doctors are already on its platform, as are 90% of med students. You want to find a job in a healthcare field? Go to Doximity. You want to market your pharmaceutical to cardiologists? Go to Doximity. Do you want to visit with your patients online? Go to Doximity. This company has already done the hard work of capturing all those medical eyeballs. Now it's finding various ways to monetize its massive upscale audience of physicians and healthcare providers.
This is a no-brainer pick in the healthcare space, and it's got an irrationally cheap price right now.
A deeply undervalued dividend stock
George Budwell (Amgen): Biotech pioneer Amgen, like most of its peers, hasn't been a great investing vehicle this year. Since the turn of the calendar year, for instance, Amgen's shares have dipped by 1.5%. This recent weakness, however, shouldn't frighten away investors. In fact, Amgen's tepid start to the new year is arguably a great buying opportunity for investors with a long-term outlook.
What does Amgen stock have to offer? First off, Amgen's shares are currently trading well under fair value, according to multiple analyst estimates. What's more, the biotech sports a healthy 3.49% annualized dividend yield at current levels. So, from a surface level perspective, this blue chip biotech stock already ticks important boxes on the valuation and passive income fronts.
The real reason to buy Amgen's stock, though, lies in its proven ability to bring important new medicines to market in a timely fashion. Speaking to this key point, Amgen earned regulatory approvals for the novel cancer drug Lumakras and the AstraZeneca-partnered asthma medication Tezspire last year. Each of these products is forecast to generate sales well in excess of $1 billion at peak. Amgen's top-tier innovation engine is thus expected to fuel high single-digit levels of revenue growth for the company starting as soon as 2023. Its growing top line, in turn, ought to support regular dividend hikes, share repurchases, and investments in value-creating business development deals.
All told, Amgen is a fundamentally sound company with a strong outlook. These two facts should help the biotech weather this moody market in the short term, and to deliver healthy returns on capital over the long term.
Tremendous growth potential at a reasonable valuation
Patrick Bafuma (Novocure): If you are scared of the bear, oncology medical device company Novocure has a promising cave where you can seek shelter. While it has cooled down by 60% from its June 2021 highs, it is beating the S&P 500 for the year, down less than 2% versus more than 8% for the index. And the medical wearables maker offers big potential in the near future.
Data from Novocure's phase 3 pivotal trial for non-small cell lung cancer (NSCLC) should be around the corner, adding a massive tailwind for the company. The oncology company believes there are approximately 46,000 NSCLC patients in the U.S. alone that are candidates for its treatment. The Optune device is a cancer-fighting wearable vest that uses electric fields to disrupt cancer cell division but has not been shown to affect normal cells in the body. Optune's potential indications in the NSCLC market are over four times its current addressable market for a rare type of brain cancer called glioblastoma. Positive NSCLC data could send the stock soaring, not to mention that it has a full stable of ongoing trials. With data pending in ovarian, hepatic, gastric, and pancreatic cancer, it's hard to believe growth has stalled out at Novocure.
For a company with such large potential tailwinds, this oncology stock looks reasonably priced, too. It has a price-to-sales (P/S) ratio of about 15. This is similar to continuous glucose monitoring device maker DexCom at a P/S ratio of about 16, as well as a P/S ratio of about 18 for surgical robotics company Intuitive Surgical. With a comparable valuation to its peers, an incredible 79% gross margin, $938 million in cash at the end of 2021, plus huge growth potential in the near future, Novocure looks like a safe place for your money in today's bear market.