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These Stocks Beat Biotech Stocks

By Dave Mock - Updated Apr 5, 2017 at 8:06PM

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You may be surprised by the true leaders and laggards.

It only takes one biotech company with a breakthrough drug advance to send an investor's portfolio soaring -- or simply blunt the effect of other losing investments. However, finding that stock among hundreds of others can be difficult. But I've found investments from another sector that are beating the pants off biotech stocks. And I know where you can learn more about them.

Would the real hot stocks please come forward?
The nearly 5,400 stocks rated by more than 120,000 Motley Fool CAPS community members include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. Clicking the Biotechnology tag pulls up a list of 231 stocks that have collectively lost 18.6% in the past year.

CAPS tags can lead you to a group of stocks that have outpaced even the near-term returns from the Biotech group: Specialized Health Services. These ix companies have held up far better than both the broader market and the Biotech group, with only an 8.8% average loss in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on a company, and why.

For instance, here are a few of the stocks in the Biotech group:

Company

CAPS Rating (out of 5)

1-Year Performance

3SBio (NASDAQ:SSRX)

*****

(61.3%)

Genentech (NYSE:DNA)

*****

(2.4%)

Geron (NASDAQ:GERN)

****

(52.1%)

Source: Motley Fool CAPS and Yahoo! Finance, as of Dec. 2.

Now, based on the interest in the CAPS community, here's a sampling of Specialized Health Services stocks that investors may want to consider.

Company

CAPS Rating

1-Year Performance

CryoLife

****

31.9%

Omnicare (NYSE:OCR)

****

(12%)

Express Scripts (NASDAQ:ESRX)

***

(25%)

Source: Motley Fool CAPS and Yahoo! Finance, as of Dec. 2.

The Omnicare overview
Serving approximately 1.4 million beds in long-term care and other facilities, pharmacy-services firm Omnicare reported a 35% jump in third-quarter profits, thanks in part to higher drug prices. Its July buyout of Advanced Care Scripts has also helped boost the stock, increasing its pharmacy-services revenue 5% to $1.55 billion. Meanwhile, its clinical research revenue rose 6% to $51.5 million.  

Despite lower reimbursement rates from UnitedHealth contracts, which are eating into profits, Omnicare recently boosted its full-year earnings guidance range by around $0.20 per share. The company expects its business fundamentals to remain sound, even given what may occur in the broader economy. With an aging U.S. population's need for increased health-care services continuing to push demand for its pharmacy-services unit, the company -- and many of its investors -- remains bullish. More than 91% of the 202 CAPS members rating Omnicare expect it to outperform the market.

Examining Express Scripts
As the price of health care rises, pharmacy benefit managers like Medco Health Solutions (NYSE:MHS) and Express Scripts help everyone win. By delivering drugs faster and more cheaply, and promoting generic alternatives to name-brand medicines, these companies cut costs for customers and health insurers alike. With a six-month supply for many generic medications costing only $20, the program achieved a 98% customer satisfaction rating in July.  

As health-care costs continue to rise, pharmacy-benefit management is expected to remain an important and lucrative field. Express Scripts is in a good position here, since it reaps higher margins on generic drugs than branded ones. And its larger competition, like Medco or CVS (NYSE:CVS), focuses on larger companies, leaving Express Scripts relatively unchallenged in serving medium-sized businesses.

The company's financial results remain strong. Express Scripts reported a 41% increase in third-quarter profits, as the generic-drug usage rate rose four percentage points to 66.2%. The company also raised the lower end of its 2008 guidance, with a positive outlook for 2009. As such, 94% of the 468 CAPS members rating Express Scripts think it's poised to beat the market.

Before you buy ...
Past performance can't reliably tell investors where to put their capital now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify the trends that may affect investments in the future. Just make sure to do your own due diligence, rather than simply following anyone else's lead.  

Biotech firms with great potential, such as 3Sbio, have been recommended by the Motley Fool Rule Breakers service. To see which stocks the analyst team is most excited about today, take a free 30-day trial.

When it comes to running long distances, Fool contributor Dave Mock lags more than he leads. He owns no shares of companies mentioned here. Omnicare is an Inside Value selection. 3SBio is a Rule Breakers pick. MedcoHealth Solutions is a Stock Advisor recommendation. The Fool's disclosure policy beats all other disclosure policies, year in and year out.

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Stocks Mentioned

Geron Corporation Stock Quote
Geron Corporation
GERN
$2.05 (-5.53%) $0.12
Express Scripts Holding Company Stock Quote
Express Scripts Holding Company
ESRX
CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$104.25 (0.19%) $0.20
Omnicare Inc. Stock Quote
Omnicare Inc.
OCR.DL
Medco Health Solutions, Inc. Stock Quote
Medco Health Solutions, Inc.
MHS.DL
3SBio Inc. Stock Quote
3SBio Inc.
SSRX

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

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