This week has seen an explosion of sensationalist news about the Zika virus spreading into America.

On this episode of Industry Focus: Healthcare, Motley Fool's Kristine Harjes and Todd Campbell talk about whether or not we should all be as terrified as the headlines seem to warrant, and if there are any investor opportunities in the companies who are working on a vaccine. Then, Todd Campbell shares his top three healthcare picks for investors to look at -- companies that have done very well since announcing their annual earnings, and have solid and exciting plans for growth in the year ahead.

A full transcript follows the video.

This podcast was recorded on March 2, 2016. 

Kristine Harjes: Should you freak out about the Zika virus? On this Healthcare edition of Industry Focus.

Hello, and welcome to Industry Focus: Healthcare. It is Wednesday, March 2nd, 2016. Yay March! I'm your host, Kristine Harjes, and joining me via phone is healthcare contributor Todd Campbell. Todd! I know you've been having some computer difficulties lately, how's it going? Is it all fixed?

Todd Campbell:
 I hope so. I apologize in advance to anyone if it doesn't come through to the normal standard, if you will.

Harjes: Well, hopefully it's all good to go. It sounds like it may have narrowly skirted a virus? Maybe a Zika virus, which just so happens to be today's topic? How's that for a transition?

Campbell: That was pretty good!

Harjes: Yeah, I tried. So, Zika has been in the news a ton lately. You get some pretty sensational headlines. Just googling it earlier today to do research for this episode, I saw the New York Times (NYSE: NYT) writes, "Zika Virus Spreading Explosively in Americas, W.H.O. Says." I saw another one, "American Women Begin Aborting Babies Over Zika Fears." So, this is a pretty big deal. Do you think that's rightly so?

Campbell: No. I think everybody should take a step back and maybe breathe a little deeply here. There's no doubt that people need to -- it's something that people are going to need to be paying attention to, especially if you travel. But, this is affecting a very, very, very small percentage of the population. So, yes, it's transmitted by a mosquito that is very common in tropical temperature regions like South America and Latin America. But, this is not something that I think everybody needs to batten down the hatches, if you will, and put the plywood up on the windows about.

Harjes: Yeah, it seems like the symptoms for this are pretty mild. Rash, fever, headache, joint pain. But, when you really start to get problematic is if you're a pregnant woman, because of some possible complications with your birth.

Campbell: For the vast majority of people, the symptoms are exactly as you stated. Many people don't even feel any symptoms, if you will, after they've been infected. The real risk and the real reason this is capturing headlines and getting people's attention is because some science, some evidence, has come to light that suggests some rare conditions can develop in people who are infected with the virus, specifically, there have been cases of newborn babies with under-developed brains within women who tested positive for the Zika virus. There's also been cases of a muscle weakening condition that's been associated with the virus. In both cases, you're talking about measuring it in the hundreds of people. In Brazil, for example, 4,000 of the cases of under-developed brains, 200-something were within women who tested positive to the virus. So, I probably put it one step below Ebola. (laughs) That being said, yeah, if the World Health Organization and C.D.C. is saying, "You know what? You'd better use some caution," then you people should keep that in mind. Be cautious. Maybe, if you're of child-bearing age, don't travel to those regions.

Harjes: Now, do we know yet, confirmed, that this is a causation kind of thing, and not correlation with the birth defects?

Campbell: Well, the W.H.O. doesn't usually over-react. This is the third time they've put something at this level. They did it during the flu virus in '08, '09, they did it with Ebola in '14, and they're doing it now. I think that shows the evidence is grounded, that there is some science behind this. But the other thing we have to remember, too, is the hundred or so cases that have been diagnosed here in the U.S., those are all travel-related cases. There's yet to be a case where someone has become infected with it from not leaving the country.

Harjes: Well, I thought I saw in the news recently that there were 14 or so people who they think might have caught the disease through sexual transmission?

Campbell: That would be the exception, because, if you have a partner who travelled to those regions and then came back and was infected, and then you had unprotected sex, then the virus could get spread that way as well. So, the C.D.C. has come out and said, "Practice safe sex." And that significantly reduces that risk. So, yes, this is something we're going to have to keep an eye on. We're probably going to see far more cases, far more common, because the mosquito that carries this virus is the same one that carries dengue fever, and dengue fever is extremely common, with hundreds of millions of infections annually in those regions. So, yeah, this is something we're going to have to pay attention to. And there's some work being done, obviously, to try and create a vaccine that could stop it in its tracks, too.

Harjes: Yeah, that was going to be my next question, is, as investors, are there any names we can look to here to try to capitalize on this?

Campbell: Developing vaccines is not easy. It can take a very long time. But there are a couple companies that have come out and said they're doing some early work on a vaccine for it--

Harjes: (laughs) Early being the key word.

Campbell: Yeah, early work. Sanofi (NYSE:SNY) is one, they have a very large presence in vaccines, about $5 billion in annual sales. They just are in the process of rolling out a vaccine for the dengue fever. And they think that, possibly, some of the lessons they've learned over the years can help them speed a vaccine along for this. Inovio Pharmaceuticals (NASDAQ:INO) is another one. They have an interesting approach with a use a strand of DNA to craft a synthetic vaccine, if you will, that can be given to people in really early stage -- I mean, we're talking studies in mice--

Harjes: Not even human.

Campbell: --there was some positive efficacy. But, investors need to remember that, while money could get spent on this research, I think the administration was seeking $1.8 billion in funding, and some of that's going to be heading toward research, vaccines take years to develop. So, we're probably not going to see anything reaching the market and commercialization potential, if you will, for a while. 

Harjes: Yeah, the reaction to Inovio has been really interesting, because the stock has received a pretty substantial boost that seems to be tied to its work in developing a Zika vaccine, but they don't have a single product currently. And their pipeline has vaccines kind of all over the place, for cancers, flus, Zika, Ebola. But as you mentioned, the Zika one is still not in human trials. So, I'm not--

Campbell: Yeah, they're hoping for primates, (laughs) and then to human trials. I caution investors: whenever you hear something like, "Zika Zika Zika!" It makes you think, "Okay, who may be the first to market with something like this?" You don't want to get the cart too far ahead of the horse here. Inovio is working on some interesting stuff, but like you said, they've got nothing on the market yet. They got a similar pop in their share price when the Ebola scare was around, because they were working on an Ebola vaccine. But you'll notice that vaccine hasn't reached the market yet. So, temper that enthusiasm a little bit. If you're going to buy the stock, make sure you're not buying it because of the potential to create a Zika virus vaccine. That's why, for investors, maybe Sanofi makes more sense, because you've got a multi-national large drug company with a lot of different irons in the fire, there are reasons to own it other than what you'd see with Inovio.

Harjes: Now, what about Intrexon (NYSE:XON), where do they fit in?

Campbell: Well, they're an intriguing play, because theoretically, if you can engineer the DNA of a mosquito so that you're not reproducing mosquitoes that can transmit the virus, wouldn't that be great? I don't know whether or not Intrexon's going to end up turning whatever they can come up with into a commercial product that should drive investors to buy the stock. So, again, I think you have to temper the enthusiasm or optimism about coming up with a solution and getting it to market, and instead, own these companies based on their other irons in the fire, and if they're able to come up with something in Zika, that's great, great for people, doctors, and patients, and theoretically great for investors, but we're still so far away from that. Approach with caution.

Harjes: So, all told, don't worry too much about Zika virus, and don't get caught up in the hype of thinking it's a good investment, either. Instead, I have a much better idea for you to occupy your mental power with -- leave us a review. Whether you listen on iTunes, Stitcher, or elsewhere, it's extremely helpful to know what you guys think of the show. As always, you can also email us at IndustryFocus@Fool.com. The second half of our show today was Todd's idea, so I'm going to let him tee it up.

Campbell: I thought it might be interesting to, now that we've got so many of the earnings reports behind us, to take a look at the healthcare space, because it's been a little beaten up (laughs), and see what stocks in the big, we'll call it mid- and large-cap area, are performing best since their earnings report. I wanted to look at companies that had market caps of $4-5 billion or greater, I wanted to find companies where, maybe, they reported earnings roughly a month ago, and then see where investors are still embracing those stocks as an indication that, potentially, they may do well throughout the rest of the year. 

And three names jumped out, that I thought would be worth bringing up and mentioning to investors as ideas to do a little bit more homework on, and see if they'd be interesting for investor portfolios. One was a health insurer, WellCare Health (NYSE:WCG). Another is involved in heart valves, that's Edwards Lifesciences (NYSE:EW). And the third is IMS Health (NYSE:IMS), which provides a lot of information and content throughout the healthcare industry.

Harjes: Thanks for your point about doing your homework. I'll take this moment to remind everybody that people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against those stocks, so don't buy or sell anything based solely on what you hear. So, with that, let's dig in, let's hear your 30-second elevator pitch for WellCare.

Campbell: Okay. WellCare gets most of their money from running Medicaid programs, primarily in the South, so, Florida and Georgia are its two biggest markets. Those are non-expansion states, so they don't benefit from the enrollment pop that some of their competitors may. That being said, they've got a very ambitious goal, and it looks like they're starting to deliver on it. That goal is to double their sales over the course of the next five years, and to significantly boost their earnings by growing their margin from 1% today to 2% down the road. Doubling a margin should have a very profit-friendly impact, if you will, on its share price over that period.

Harjes: So, I definitely want to hear more about how they're planning on doing that, but first, just for context, can you explain exactly what you mean by expansion state?

Campbell: Sure. Yeah. As part of Obamacare, states could opt in to Medicaid expansion, which would allow Medicaid, basically, to enroll anyone who earned up to 138% of the federal poverty level. Not all states opted in. I think 32 or 33 states decided to expand Medicaid, the remaining states chose not to. As a result, Medicaid insurers operating in states that expanded saw a very large increase in the number of people enrolling in those programs, versus non-expansion states, and as a result, that drove their revenue and profit substantially higher. I think it was Kaiser Family Foundation reported double-digit growth in enrollment in the last fiscal year for expansion states, and maybe 5-6% growth for non-expansion states.

So, its important, obviously, to understand that as investors, where do they get their business, and why is it growing. But in the case of WellCare, I think investors -- I mean, they've driven this stock up 22% in the past month, and in my view, the excitement for that is really tied to the future outlook, the ability to grow its business through mergers and acquisitions, to be able to continue to reach more members in the states they already serve by increasing their star ratings, which is how a lot of people go out and select. They also have a Medicare business, a lot of people go out and select their Medicare plans. But, I think this is an intriguing company that is worthy of doing a little more research on for investors.

Harjes: Yeah, they're definitely a niche player with an interesting business model. Let's turn toward Edwards Lifesciences. They're a medical device maker, they do artificial heart valves and transcatheter heart valves in particular. What are you seeing here?

Campbell: Transcatheter heart valves are, the procedure growth is enormous. Essentially, what we're talking about here is, we're talking about replacing heart valves in seniors or elderly patients that wouldn't qualify for open heart surgery because of other complications they may have.

Harjes: How big of a market is that?

Campbell: It's -- I mean, it's sizable enough that this is a company that's bringing in over $1 billion in sales. You've got the company reporting $671 million in Q4 sales worldwide alone. So, it's a $2.4 billion run rate, $2.5 billion in 2015. And it's growing, tremendously.

Harjes: Yeah, it sounds like a pretty niche-y kind of tool. It's used for just these people with high-risk circumstances. But then, you think about it, heart disease is America's number one killer. So, this is an absolutely massive market to begin with. So, even once you narrow it down to just patients that fit a certain criteria, it's still a pretty big market.

Campbell: Right. And from an investment standpoint, you've got a fairly large market, they've got plans to try and expand this to people who are at less risk, I guess, moderate-risk patients, if you will. So, you could get patient volume procedure growth that way, that would drive sales and revenue higher. And, you've got a company that has a really good balance sheet. I think they have $1.2 billion in cash, and about half that in debt. They've beat earnings expectations in each of the last four quarters, and they're thinking that their earnings could continue to grow substantially this year.

Harjes: Is that anything to do with the recently implemented 2 years of suspension of the U.S. Medical Device tax?

Campbell: That's going to provide a tailwind. Yeah, in December, it was agreed to suspend that or delay that or however you want to phrase it, the 2.3% tax that was implemented as part of Obamacare on medical device makers. So, you get a nice, natural tailwind there. But, again, they've got a substantial double-digit uptake increase in sales for their transcatheter valves. And they've got the market share dominant in Sapien product, for that treatment. So, this is one of those situations where, I think, again, investors are saying, "We've got a company that's growing double digits, we've got a solid balance sheet, we've got a solid opportunity for future growth, I think that makes this a stock that's worthy of people's attention."

Harjes: Okay, let's move on to our third and final stock, IMS Health Holdings, which is up 13% in the last month.

Campbell: Correct. IMS Health may not be well-known among the average investor, but anyone who is in the healthcare industry is probably familiar with them. They're a huge provider of information content across the health industry. Basically, if a drug maker has a drug, and they want to know how it's performing in the marketplace, or they want to figure out how better to reach doctors and educate them on the benefits of their drug, they're going to be working with IMS to find out that information, analyze that information, and then develop strategies to go after and grow market share. In the last year, this is a global company, so there's been some currency headwinds, sales are up 20%, 28% if you adjust back out the currency.

So, I think you look at this company and you say, "Well, are more drugs getting approved every year? Yes. Is the patient population for medicine increasing? Yes. Are companies more and more interested in figuring out how to drive market share growth? Yes." So, I mean, all of these are tailwinds that could help IMS continue to grow into the future. That being said, it's been an acquisitive company. They do have some debt that investors should be aware of, and of the three, this one is maybe my #3 choice to consider for portfolios. But, that being said, take a look at it and check it out, because shares have maintained their rally over the course of the last month since the report, and content is important. It's key.

Harjes: So, if these guys are your #3 out of the three we just discussed -- and I'll end with this question -- which one is your favorite pick?

Campbell: Edwards.

Harjes: (laughs) That was easy.

Campbell: It has the greatest opportunity for growth, it has reasonable valuation, the bottom line is growing nicely. I think they've got a really good market opportunity, really good market leading product. And then, I would look to WellCare. Then, I would look to IMS.

Harjes: Alright, that was a high-conviction answer, I like it. Thanks so much for being on the show today, Todd. As always, folks, thanks for listening and Fool on!

Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends The New York Times. 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.