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Sick of Your Portfolio? These Healthcare Stocks Might Be The Cure
Whether you're looking to inject something special into your catalogue of investments or just searching for healthcare stock insights, this week's Investing Intel has what you need.
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Howdy, and welcome to another edition of Investing Intel from the team at ValueTheMarkets! As it’s the Easter weekend, we’re mixing things up for this issue by coming to you on a Saturday. We’ve got no chocolate for you, but the newsletter is packed with investing Easter Eggs we think you’ll enjoy, including:
👉 Three stock insights
👉 Investing signals
👉 Fear & Greed Index
👉 The finest content from ValueTheMarkets
👉 Key dates for your diary
👉 Some fun facts!
This week, we’re talking about investing in healthcare and pharmaceuticals.
What’s so great about investing in this sector? Well, for starters you could find yourself backing tomorrow’s miracle cures and treatments which make a real difference to patients with challenging diseases and conditions. Additionally, the industry is responsible for thrilling innovation.
From the perspective of investors, the space is often characterized as a home of steady returns and defensive investments. In fact, the sector has been the second-fastest growing since 1986, according to a research from BofA Global Research.
But which healthcare stocks would we prescribe?
The Moon-Shot: Chimerix (NASDAQ: CMRX)
Chimerix (NASDAQ: CMRX) isn’t exactly a giant, but the biopharmaceutical business can pack a punch. Its revenues can be a little sporadic, but a $325m procurement deal for the company’s Tembexa smallpox antiviral stands out as a significant recent win.
It wasn’t necessarily a popular move with shareholders though, with CMRX stock sliding by more than 50% at the news.
However, the deal has ensured there is some money coming into Chimerix and the business has also significantly reduced its operating costs. Additionally, the business has a strong cash position, having increased its cash and cash equivalents from $15.4m to $25.8m in 2022 and seen short-term investments more than double.
Furthermore, the company has the third lowest price-to-equity (P/E) ratio across all healthcare stocks, indicating that it could be undervalued at its current share price.
But the company’s solid financials don’t tell the full story.
Chimerix opted to cash in on Tembexa so it had the capital for the development of its oncology franchise. This namely includes phase 3 trials of lead asset ONC201, a brain tumor treatment which could have the potential to address significant unmet patient needs.
The company’s share price has still not recovered from its decision to gamble on ONC201, but if this play pays off then there could be serious returns for its backers.
Low P/E ratio
Addressing unmet needs
The Familiar Face: CVS Health Corporation (NYSE: CVS)
Unless you’ve been living under a rock, you’ll have heard of CVS Health Corporation (NYSE: CVS). The business is a giant in healthcare services and it has around 9,000 locations in the US alone.
But this isn’t all the company has to offer. In fact, the diversity of its business model is one of the key reasons we like CVS stock. Besides its well-known retail pharmacy stores, the company’s offering includes specialty pharmacy services and healthcare insurance.
There’s more to like too.
CVS’s 2018 acquisition of health insurance giant Aetna considerably expanded its reach and its upcoming purchase of primary care centre operator Oak Street Health further cements its status as a healthcare behemoth.
These additions, along with healthcare services innovations like its in-store HealthHUB desks, appear to leave the company well positioned to serve an ageing US population with growing pharmaceutical needs.
To cap it all off, the company’s most recent earnings showcase impressive revenue growth and strong cash flow. CVS also offers income and has a solid dividend yield of 3.11%. Not too shabby!
Leading market position
Diversified business model
Ultra-low price-to-sales ratio
The Pharma Giant: GSK (NYSE: GSK)
Our final tip is storied British pharma giant GSK (NYSE: GSK), an innovative outfit with a wealth of strings to its bow. Products and services offered by the company include pharmaceuticals, vaccines, and consumer healthcare products.
Across these broad categories, the business has a robust pipeline of innovative drugs and vaccines under development. In fact, its current count of candidates under development is above 80.
This huge range of potential products could obviously have a hugely positive impact on revenue and profitability, particularly as GSK has particularly focused on high-growth areas such as oncology and immunology.
The financial side of the operation looks smooth too, with full-year results released in February showing double-digit increases in both revenue and earnings. GSK has also confidently predicted further growth across 2023.
Despite this, along with a fantastic dividend yield of over 5%, GSK stock is still down by more than 10% over the past 12 months. Could that mean this is a chance to pick up the stock on the cheap?
However, there are some drawbacks. Notably, GSK is facing a large number of US lawsuits over alleged links between its Zantac heart medication and cancer.
Thousands of these cases were dismissed by a Florida judge back in December for a lack of scientific backing, but GSK still appears to be amid protracted courtroom wrangling. Even so, the company will be hoping this mass dismissal is a sign of good things to come.
Strong product pipeline
Great dividend yield
What’s in store for healthcare stocks in 2023?
While consensus is that last year was quiet for the industry, especially after an especially active couple of years amid the COVID-19 pandemic, the coming months are largely projected to bring something of a return to form. Analysis from RSM indicates that healthcare industry IPOs should pick up in the second half of the year and a slowdown in venture capital investment could lift in the coming year.
There’s one area which really stands out though.
M&A action is widely backed to pick up after slow going last year. A report from PwC says the total deal value is expected to amount to between $225bn and $275bn across all subsectors, citing ample corporate cash and the need to cover pipeline gaps over the coming years. Indeed, RSM states that large biopharma companies are sitting on an estimated $93bn in cash, with this number only increasing as revenues pour in.
However, forecast economic improvements later in the year could spell good news for growth stocks within the sector, which are often development- or clinical-stage outfits. As such, it can be wise to keep tabs on these, often smaller, businesses. One in our crosshairs is Cardiol Therapeutics (NASDAQ: CRDL), who are specialists in anti-inflammatory and anti-fibrotic therapies for various forms of heart disease.
Now we’re going to take a moment to look beyond healthcare and examine some stock market trends more generally. The top five trending stocks on Reddit right now are:
NVIDIA (NASDAQ: NVDA)
C3.ai (NYSE: AI)
Tesla (NASDAQ: TSLA)
Toronto-Dominion Bank (NYSE: TD)
Apple (NASDAQ: AAPL)
Most of these are part of the usual crowd, but one name really stands out. That’s right, Toronto-Dominion Bank is squarely in focus and we’re afraid it’s not exactly good news. The company has the lamentable title of ‘World’s Most Shorted Banking Stock’, according to data provider ORTEX, which said that hedge funds’ bets against the stock amounted to more than $4bn on Wednesday. While Bloomberg attributed this lack of confidence in Toronto-Dominion to “general skittishness” towards the banking sector, there are also concerns about the bank’s exposure to US regional lenders and a slowdown in America’s housing market.
Fear & Greed
The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.
At the close of the last session, traders were leaning towards greed. Opinion is little-changed since last week, with cautiously optimistic sentiment indicating that traders think there has been a lucky escape from the baking crisis. However, with concerns rising about some banking stocks, like the aforementioned Toronto-Dominion, we could see this shift over the coming days.
Dates in the Diary
Monday 10th - Markets Closed
Wednesday 12th – US Inflation Data (Mar) / Bank of Canada Interest Rate Decision / FOMC Minutes Release
Thursday 13th – US PPI Data (Mar) / OPEC Monthly Report
Friday 14th - US Retail Sales Data (Mar) / US Industrial and Manufacturing Data (Mar) / US Import and Export Data (Mar)
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Fun Fact – Choc Market
If you’re celebrating Easter, there’s a good chance you’re going to be buying some chocolate. After all, it is delicious!
But have you ever considered investing in chocolate?
If so, you’ll be relieved to hear that you can invest in cocoa futures through exchanges like the Intercontinental Exchange (ICE) and the New York Mercantile Exchange (NYMEX).
The introduction of cocoa futures by the American Stock Exchange in 1970 followed the growing global demand for chocolate. By allowing investors to speculate on the future price of cocoa beans, the futures contract helped to create a more efficient market for the commodity and allowed chocolate manufacturers to better manage their risks and secure their supplies.
It might be a little late to take advantage of these futures this Easter, but it’s worth bearing in mind for the next time chocolate eggs are hitting the store shelves!
Until Next Time
Many thanks for taking the time to enjoy Investing Intel today, we hope you’ve enjoyed our insights and are looking forward to more in the week ahead.
See you later!
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