3 Healthcare Stocks to Buy on Sale

By Markets Fool.com

Source: Flickr user Elliott Brown.

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Many of the best stocks in healthcare go on sale whenever the market retreats, and this time is no different. Obviously, no one knows when these stocks will stop falling, but each of them has top-tier products and bulletproof balance sheets that make them perfect to consider for long-term portfolios.

No. 1: Gilead Sciences
It's probably not too surprising to see Gilead Sciences listed here. The company's sales and profit have been on a tear since launching hepatitis C drugs in 2013 and 2014 that quickly became the standard of care.

Last quarter, Gilead Sciences' hepatitis C drug sales were running at an annualized clip of nearly $20 billion, so the company is flush with cash that it can use to boost its dividend (which is currently yielding a 1.7%), buy back shares, and invest in future growth.

Admittedly, Gilead Sciences will face its stiffest challenge yet in hepatitis C this year because the FDA could approve a competing HCV therapy from Merck & Co. . However,Gilead Sciences' sales barely seemed to notice the launch of AbbVie'sHCV drug, Viekira Pak, last year, and the FDA is also could make a decision on whether to approve Gilead Sciences' next-generation hepatitis C therapy this summer.

Assuming that the FDA green-lights Merck & Co.'s and Gilead Sciences' drugs, Gilead Sciences could solidify its standing as the dominant player in HCV because its drug is arguably more effective and safer to use than Merck & Co.'s. If doctors agree, then Merck & Co.'s drug could end up being a bigger threat to AbbVie than it is to Gilead Sciences.

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Overall, Gilead Sciences' HIV and hepatitis sales should eclipse $30 billion this year, and since the company has a ton of cash, the potential for a shareholder friendly-dividend increases, and with an industry-low forward P/E ratio of 8, it ought to be on investors' radar; especially at these prices.

No. 2: Mylan, Inc.
One of healthcare's biggest emerging trends is the shift from expensive biologics to cheaper generic alternatives, known as biosimilars.

Historically, biologic drugs have been mostly immune to the threat of generic competition because they're created in living cells and therefore are harder to duplicate than traditional small-molecule drugs. However, recent healthcare reform has provided a pathway to approval for drugs that work similarly but aren't exact copies of biologics, and as a result biosimilars are positioned to capture billions of dollars in sales annually in the coming years.

Because Mylan is already a global leader in generic medicine, it has the infrastructure and know-how in place to be at the forefront of biosimilar development and commercialization. The company is collaborating on 12 different biosimilars, including six that are in development with Biocon and another six that are tied to its recently signed partnership with Momenta Pharmaceuticals . A variation of AbbVie's $12 billion-per-year arthritis drug Humira and Bristol-Myers Squibb's billion-dollar blockbuster arthritis drug Orencia are among those Mylan is working on.

Given that Mylan is already hauling in $9 billion in annual revenue and its shares are relatively cheap (its forward P/E ratio is below 10), the significant revenue and profit growth tied to biosimilars makes this company one of my favorites to stash away for the future.

Source: Pfizer.

No. 3: Pfizer
Speaking of biosimilars, global pharmaceutical Goliath Pfizer1 made a big splash in biosimilars last year, when it acquired Hospira, a specialty-drug maker with a robust pipeline of biosimilars, for $17 billion. The acquisition catapulted Pfizer into a leadership role in biosimilars, giving it five biosimilars targeting billions of dollars in sales that could make it to market by 2020.

Hospira, however, wasn't the only needle-moving deal Pfizer announced last year that makes it an intriguing stock to buy low.

The company also surprised investors with a massive $160 billion proposed merger with Botox drugmaker Allergan .

If that merger closes, it will add $16 billion in annual sales to Pfizer's top line and potentially shave $2 billion per year from Pfizer's tax bill. That's because Pfizer is structuring the merger as if Allergan, which is based in tax-friendly Ireland, is acquiring it, rather than the other way around.

Pfizer could also reward investors in the coming years with bigger profits, because it cut its costs significantly. After losing patent protection on its $13 billion-per-year Lipitor in 2011, the company's spending on SG&A has dropped to less than $14 billion from more than $18.5 billion. That means Pfizer is leaner than its been in years, and that has industry watchers thinking the company's EPS will grow to $2.36 in 2016 from $2.18 in 2015.

If you're still unconvinced, then consider this final point: Pfizer is trading at just 13.1 times forward earnings per share and its shares are paying a healthy 3.7% dividend yield. With a reasonable valuation like that and a dividend yield that high, this could be the perfect time to pick up some shares.

The article 3 Healthcare Stocks to Buy on Sale originally appeared on Fool.com.

Todd Campbellowns shares of Gilead Sciences and Mylan. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Momenta Pharmaceuticals and Mylan. 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.