Bloomberg
UnitedHealth has the highest share of “buy,” or equivalent, ratings from analysts among stocks in the S&P 500 health-care sector.
The health-care sector has been left behind by the 2019 stock-market rally.
Stocks in that sector are down, in part, because of concerns about proposals by Bernie Sanders and other presidential candidates for radical changes to the U.S. health-care system. But no matter what might be proposed, we are a long way off from actual legislation that could pass both houses of Congress to redesign 18% of the U.S. economy. Meanwhile, the aging U.S. population and continual innovation underline an excellent long-term thesis for the health-care sector.
So it is no surprise that analysts see significant profit opportunities for investors who buy the right health-care stocks at current prices.
From first to last
To put things into perspective, here’s how the 11 sectors of the S&P 500 SPX, +0.88% have performed this year and over longer periods:
Total returns 2019 2018 3 years 5 years 10 years 15 years Information Technology 26.3% 0% 98% 149% 506% 414% Industrials 21.9% -13% 43% 61% 349% 263% Communications Services 21.2% -13% 15% 32% 159% 181% Consumer Discretionary 21.0% 1% 56% 98% 526% 360% Energy 20.6% -18% 11% -14% 91% 194% Financials 15.1% -13% 51% 69% 294% 62% Materials 14.2% -15% 29% 33% 208% 207% Real Estate 14.1% -2% 25% 58% 409% 300% Consumer Staples 13.2% -8% 20% 50% 252% 269% Utilities 9.0% 4% 34% 62% 235% 331% Health Care -0.1% 6% 26% 61% 337% 261% S&P 500 Index 16.7% -4% 48% 72% 325% 248% Source: FactSet
It is interesting that health care was last year’s best-performing sector. But there is no question it has lagged behind over the past three years.
The next obvious question is whether we’re in the midst of an overreaction in the market. Hundreds of MarketWatch readers left comments after reading this article on the subject last week.
Breakdown of S&P 500 health-care sector
There are 62 stocks in the S&P 500 health-care sector. What follows are lists of the best and worst performers this year, and lists of the companies showing the highest levels of sales growth, and, finally, the companies most favored by analysts.
Bucking the trend: best health-care performers
Ten S&P 500 health-care stocks are up at least 20% this year through April 22, including reinvested dividends:
Company Ticker Total return - 2019 Total return - 2018 Change in quarterly sales Change in quarterly sales per share Celgene Corp. CELG, +0.27% 46% -39% 16% 25% Align Technology Inc. ALGN, +1.88% 39% -6% 27% 28% Dentsply Sirona Inc. XRAY, +0.93% 33% -43% -3% -1% Alexion Pharmaceuticals Inc. ALXN, +2.64% 32% -19% 19% 20% Mettler-Toledo International Inc. MTD, -1.44% 30% -9% 5% 8% Waters Corp. WAT, -12.31% 28% -2% 4% 10% Perrigo Co. PLC PRGO, +1.20% 27% -55% -7% -4% Danaher Corp. DHR, +0.72% 23% 12% 4% 3% PerkinElmer Inc. PKI, +0.28% 21% 8% 18% 16% Cerner Corp. CERN, +1.85% 20% -22% 4% 6% Source: FactSet
You can click on the tickers for more information about each company.
Several of the winners have been rebounding from large declines in 2018.
The sales figures are based on the most recently reported quarterly results through April 22, compared with the year-earlier quarter. For all the sales numbers in this article there is another column showing sales per share. If a company’s sales have increased dramatically because of an acquisition, then it is important to look at sales per share if the deal was funded through the issuance of new shares. Since the original shareholders’ ownership has been diluted, the increased sales may not seem “worth it” if sales per share haven't also risen considerably.
Sales per share will increase more rapidly than raw sales if a company has been buying back enough shares to reduce the share count considerably. Buybacks also boost earnings per share.
Worst health-care performers of 2019
Here are the worst performers in the S&P 500 health-care sector this year through April 22:
Company Ticker Total return - 2019 Total return - 2018 Change in quarterly sales Change in quarterly sales per share Biogen Inc. BIIB, +0.61% -24% -6% 5% 11% Cigna Corp. CI, +3.94% -22% -6% 34% 29% Abiomed Inc. ABMD, +0.48% -20% 73% 30% 29% CVS Health Corp. CVS, +1.01% -19% -7% 12% 2% Centene Corp. CNC, +4.64% -17% 14% 29% 9% Humana Inc. HUM, +2.41% -15% 16% 7% 11% AbbVie Inc. ABBV, +0.65% -13% -1% 7% 16% ResMed Inc. RMD, +1.48% -12% 36% 8% 8% Bristol-Myers Squibb Co. BMY, +0.18% -11% -13% 10% 9% Regeneron Pharmaceuticals Inc. REGN, +3.03% -11% -1% 22% 23% Source: FactSet
With CVS CVS, +1.01% one of this year’s worst performers, you might be wondering why its rival Walgreens Boots Alliance WBA, -1.63% isn’t on the list. This is because Walgreens is actually in the S&P 500 consumer-staples category. CVS is considered more of a health-care-focused company because it owns Caremark, a pharmacy-benefits manager. It acquired Aetna in November.
Read: Walgreens and CVS stocks look like tempting values, but investors may be swallowing a bitter pill
Best health-care sales growers
Here are the 10 S&P 500 health-care companies with the greatest increases in sales for their most recently reported quarters:
Company Ticker Industry Change in quarterly sales Change in quarterly sales per share Gross income margin Gross income margin - year-earlier WellCare Health Plans Inc. WCG, +1.51% Managed Health Care 40% 25% N/A N/A Becton, Dickinson and Co. BDX, +1.33% Medical Specialties 35% 13% 47.43% 50.32% Cigna Corp. CI, +3.94% Managed Health Care 34% 29% N/A N/A Vertex Pharmaceuticals Inc. VRTX, +4.06% Biotechnology 33% 31% 85.84% 87.10% Abiomed Inc. ABMD, +0.48% Medical Specialties 30% 29% 83.04% 83.77% Centene Corp. CNC, +4.64% Managed Health Care 29% 9% N/A N/A Align Technology Inc. ALGN, +1.88% Medical Specialties 27% 28% 72.52% 75.93% Regeneron Pharmaceuticals Inc. REGN, +3.03% Biotechnology 22% 23% 91.70% 91.14% Incyte Corp. INCY, +2.38% Biotechnology 19% 16% 93.32% 93.26% Alexion Pharmaceuticals Inc. ALXN, +2.64% Biotechnology 19% 20% 84.20% 83.48%
For most of these companies, we are showing a comparison of gross income margins. A company’s gross margin is sales, less the cost of goods sold, divided by sales. It is an indication of pricing power. It is good to see the margin expanding as sales increase. Of course, margins cannot always be expanding, but a narrowing margin could mean a company is having difficulty defending its market share or giving up profits in an attempt to expand its presence.
Analysts’ favorites
Here are the 10 S&P 500 health-care stocks with the highest percentage of “buy,” or equivalent, ratings among sell-side analysts polled by FactSet:
Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - April 22 Consensus price target Implied 12-month upside potential UnitedHealth Group Inc. UNH, +1.53% 96% 4% 0% $227.11 $287.91 27% Abiomed Inc. ABMD, +0.48% 91% 9% 0% $260.93 $414.56 59% Boston Scientific Corp. BSX, +2.75% 88% 8% 4% $34.93 $44.26 27% Alexion Pharmaceuticals Inc. ALXN, +2.64% 86% 14% 0% $128.96 $163.84 27% Centene Corp. CNC, +4.64% 84% 16% 0% $48.08 $77.83 62% Align Technology Inc. ALGN, +1.88% 83% 17% 0% $290.63 $311.47 7% Abbott Laboratories ABT, +2.13% 82% 9% 9% $74.51 $82.94 11% Danaher Corp. DHR, +0.72% 82% 12% 6% $126.87 $138.92 10% Cigna Corp. CI, +3.94% 80% 20% 0% $147.99 $236.22 60% Agilent Technologies Inc. A, -0.01% 80% 13% 7% $75.57 $88.15 17% Source: FactSet
Taking a slightly different approach to “favorites,” here are the 10 S&P 500 health-care stocks with majority “buy,” or equivalent, ratings and the most 12-month upside potential implied by analysts’ price targets:
Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - April 22 Consensus price target Implied 12-month upside potential Nektar Therapeutics NKTR, +2.00% 67% 33% 0% $31.00 $70.83 128% Centene Corp. CNC, +4.64% 84% 16% 0% $48.08 $77.83 62% Cigna Corp. CI, +3.94% 80% 20% 0% $147.99 $236.22 60% Abiomed Inc. ABMD, +0.48% 91% 9% 0% $260.93 $414.56 59% Humana Inc. HUM, +2.41% 72% 28% 0% $242.60 $351.55 45% Anthem Inc. ANTM, +2.72% 79% 21% 0% $244.00 $353.14 45% CVS Health Corp. CVS, +1.01% 71% 29% 0% $52.43 $72.04 37% Allergan PLC AGN, +1.36% 64% 36% 0% $140.26 $186.65 33% Mylan NV MYL, -0.45% 70% 30% 0% $26.72 $35.44 33% HCA Healthcare Inc. HCA, +4.50% 69% 21% 10% $115.00 $152.48 33% Source: FactSet
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