When looking for a stock to add to one's portfolio, it is important to take into account a company's track record in terms of earnings growth, and also to ensure that the company's stock price follows its earnings upwards. The following five stocks in the healthcare and biotech field all have stock prices that reflect their strong earnings numbers. They also have the following characteristics, which make them five stocks poised for major growth:
- A five-year compound annual EPS growth rate of at least 25%
- A market cap of $5 billion or less
- A CAPS rating of four or five stars
The stocks:
|
Stock |
Market Cap (in Billlions) |
52-Week Return |
EPS Growth* |
CAPS Rating |
|---|---|---|---|---|
|
LifeCell |
$1.5 |
94% |
40% |
**** |
|
American Oriental Bioengineering |
$1.0 |
78% |
32% |
**** |
|
ArthroCare |
$1.8 |
57% |
46% |
***** |
|
Hologic |
$3.6 |
39% |
71% |
***** |
|
Healthways |
$2.1 |
34% |
31% |
***** |
Why they are winning
LifeCell and Hologic have both had immensely successful cutting-edge technologies. LifeCell is succeeding in part because of its position in a niche market. The company develops tissue-based products used by doctors to repair soft-tissue damage, such as burns, during surgical procedures. LifeCell's Alloderm Regenerative Tissue Matrix continues to experience surging demand, with sales of the product up 36% year-over-year in its second quarter.
Hologic manufactures and markets diagnostic and medical imaging systems used in the detection of breast cancer. At $191.5 million, Hologic's Q3 revenue represented a year-over-year increase of 60%. If the company's backlog is any indication of product demand, the outlook continues to be favorable for the company. At the end of its Q3, the company had a record backlog of $222 million worth of products.
Healthways has benefited from an aging baby-boomer population, as well as lucrative contracts with health plans and self-insured employers. Healthways provides health support programs that assist individuals in taking on healthier lifestyles. It also works with hospitals to provide support for a wide array of both outpatient and inpatient conditions.
The company recently closed out a fiscal year in which EPS grew by 20% on a 49% spike in revenue. Its pipeline has been growing, thanks to an increased awareness concerning rising health-care costs. The opportunity for health plans and employers to keep these costs in check by taking proactive and preventative measures via Healthways' different offerings is viewed as an opportunity to not only keep health-care costs down, but also keep productivity in the workplace up.
Another company that has been benefiting from the aging of baby boomers is medical device company ArthroCare. The company's Coblation technology has gained acceptance in various surgical procedures, such as arthroscopy, as it smoothly dissolves target tissue while minimizing damage to surrounding healthy tissue during surgery. Shares of ArthroCare are now trading at an all-time high, following a blowout Q3 in which EPS grew nearly 26% versus the year-ago quarter on a 21% increase in total revenue. The company's sports medicine business has been the anchor for this company, as sports medicine product sales now account for more than 60% of the company's total sales. The sports medicine business also was a key driver in the company's 35% pop in international sales versus its 2006 Q3.
I think many stocks that cash in on medical enhancements that can improve the day-to-day lives of an aging population are great long-term plays. Other companies that are similarly making bank on this trend and also have favorable outlooks are Stryker
The final stock in this list is American Oriental Bioengineering, a plant-based pharmaceutical company. It is a play on alternative medicine that has recently seen major contributions from its over-the-counter business segment, which includes a form of ginseng designed to soothe the nerves. Not only is American Oriental Bioengineering a Cash King, it is also producing some explosive growth from its operations. In its Q2, the company checked in with 67% growth in EPS on a 49% surge in revenues versus its year-ago quarter.
For Fools who have had their nerves rattled following the market's recent volatility, each of the five stocks mentioned above provide suitable healthcare or biotech plays that can produce major growth -- as well as soothe the soul.
For related Foolishness check out:
