After delivering market-beating returns, many healthcare stocks tumbled last month and that might be good news for investors who have been waiting on the sidelines for an opportunity to buy. For example, these three companies have long-term opportunities that could make them worth buying on sale.
No. 1: Mylan N.V. (NASDAQ:MYL): down 17.5% in July
Mylan's status as a generic drug giant and leader in generic biologics known as biosimilars is why it became a target of an unsolicited offer from Teva Pharmaceuticals last quarter to buy it.
Teva's interest caused Mylan's stock to spike; however, last month's decision by Teva to ink a friendlier $40 billion deal to buy Allergan's generic business instead of Mylan has sent Mylan's shares reeling and that M&A-inspired drop may be offering a significant opportunity to buy.
Over the past six years, a swell of drugs losing patent protection has led to Mylan's revenue and earnings growing by compounded annual rates of 9% and 28%, respectively, and with more patents expiring, including $67 billion in brand-name biologics, there's plenty of growth potential for Mylan that could more than justify paying 11.7 times forward earnings to buy its shares.
No 2: Biogen (NASDAQ:BIIB): down 21.1% in July
Biogen is one of biotechs gold standards, but its shares got walloped in July after the company reported a slowing of sales of its multibillion oral MS drug Tecfidera and insight into its promising Alzheimer's therapy that some investors viewed as negative.
Investors may have overreacted to the news. After all, Tecfidera's second-quarter sales grew to $883 million in Q2 from $700 million a year ago, making it the most widely prescribed oral MS drug and altogether, Biogen's MS franchise racked up sales of $2.06 billion in Q2 -- not bad for an indication valued at $17 billion annually.
Additionally, Biogen's enjoying solid sales growth for the hemophilia drugs it launched last year, with Eloctate and Alprolix posting combined sales of $129 million in the second quarter, up from just $10 million a year ago when they launched. And Biogen has a slate of drugs making their way through its pipeline that offer upside, including Zinbryta, an MS drug its co-developing with AbbVie that has already been filed for approval. Of course, Biogen is also developing the Alzheimer's drug aducanumab, which is in phase 3 trials. Although it's unclear how efficacious aducanumab will prove to be, there's a significant opportunity ahead for any drug that improves disease progression or cognition because Alzheimer's is notoriously tough to treat and affects millions of patients.
Finally, Biogen's retreat has made its valuation far more attractive than it was a month ago, especially considering its top-shelf balance sheet. Its forward P/E is just 18.7 and it has nearly $2.4 billion in cash on the books, which strengthens the argument that this company offers investors attractive risk/reward at these levels.
No. 3: Centene Corp. (NYSE:CNC): down 12.8% in July
Centene has been a stellar performer following the implementation of the Affordable Care Act and the adoption of Medicaid expansion by 31 states, including Washington, D.C.
The company, which makes most of its money running state Medicaid programs, has seen its membership surge 38% in the past year to 4.6 million people and that's led to its quarterly sales jumping 39% year over year to $5.2 billion. Importantly, leveraging that revenue growth against fixed costs allowed its second-quarter profit to swell to $0.72 per share, up from $0.39 last year.
Yet, despite the robust top- and bottom-line growth, investors jettisoned shares in the company last month on concerns that its merger with competitor Health Net would take its eye off the ball, weigh down its bottom line as integration costs kick in, and reduce the likelihood of being acquired itself.
That view could prove to be shortsighted given that Health Net offers important growth in key markets like California and cost savings over time should justify Centene's $6.8 billion purchase price. Centene estimates that the deal will be significantly accretive to earnings in its first full year (to the tune of at least 10%) and that it can remove $150 million in overlapping annual costs by the end of year number two. If so, then Centene offers plenty of profit-friendly potential as a stand-alone company.
Tying it together
Investors shouldn't buy companies simply because their share price has fallen, especially if the companies aren't leaders in their respective spaces. In the case of Mylan, Biogen, and Centene, however, each is a market leader with catalysts that could support ongoing future growth, and for that reason, picking up shares on sale may prove to be a savvy long-term move.
Todd Campbell owns shares of Mylan. Todd owns the equity research firm E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.