If you're wanting to start the new year off with solid growth potential, the healthcare sector is the place to look.
According to data from Standard & Poor's, through Sept. 30, 2017, healthcare was the second-best performing sector on a percentage basis, out of 10 sectors, in five of the past 10 years. It came in third in two additional years. That's seven out of the past 10 years that healthcare was a top-three-performing sector. Those are figures growth investors have banked on and will probably continue to lean on in the future.
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So, what healthcare stocks look ripe for the picking in January? According to the three Foolish investors we questioned, biotech blue chips Celgene (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD), along with Big Pharma Bristol-Myers Squibb (NYSE: BMY), could be worth buying.
Double-digit growth for a value price
Brian Feroldi (Celgene): While 2017 was a great year for healthcare stocks in general, biotech giant Celgene was largely left out in the cold. Shares massively underperformed the S&P 500 and ended the year down by double digits. What gives?
Investors can blame the fall on two developments. First, Celgene stated that it was discontinuing development of GED-0301 as a hopeful treatment for Crohn's disease. That was bummer news since the company shelled out $710 million a few years ago to get its hands on the drug.
The second big blow came after the company reported its third-quarter results. While the quarterly numbers were decent, management poured cold water on its financial guidance for the year, stating that its full-year revenue was going to come in at the low end of its guidance range because sales of anti-inflammatory drug Otezla were slowing significantly. So significantly, in fact, that management was also forced to drop its 2020 financial targets.
That's a lot of bad news to pack into such a short period of time, so it's understandable why so many traders decided to head for the exits. However, with all of the bad news out of the way, I think it's a great time for investors to buy.
Why am I so bullish why others are bearish? A few reasons.
First, management's updated guidance for 2020 calls for revenue and non-GAAP EPS growth of 14.5% and 20% annualized, respectively. That's still quite strong in absolute terms. Second, shares currently trade for less than 12 times forward earnings, which is the cheapest valuation that we've seen in years. Third, the company still has many promising drugs in its pipeline. Finally, management stated plans to initiate a "strong share repurchase program" in response to the winning share price. I think that's a good use of capital at today's prices.
In total, Celgene still offers investors reasons to believe that its days of fast growth are far from over. Given today's bargain price tag, I think this is a great stock for healthcare-focused investors to take a hard look at.
Mount Everest is coming
Keith Speights (Gilead Sciences): I like so many healthcare stocks that it's hard to pick just one to buy in January. That being said, I think Gilead Sciences is a great choice to buy sooner rather than later. One key reason is that Mount Everest is coming.
No, the world's tallest mountain isn't about to sprout legs and head for the U.S., as cool as that idea might be. Gilead has referred to its bictegravir/F/TAF combo as its "Mount Everest." The FDA is scheduled to announce an approval decision on the HIV drug by Feb. 12. How big could the drug be for Gilead? Peak sales estimates for the bictegravir/F/TAF combo range between $5 billion and $6 billion.
Of course, Gilead has to win FDA approval first. While anything can happen, I expect a thumbs up. Assuming approval is indeed given, bictegravir/F/TAF appears likely to be the biggest new drug launched this year.
But what about Gilead's tanking hepatitis C virus (HCV) franchise sales? Gilead CEO John Milligan thinks there will be "smoothness to HCV sales" down the road. He even predicted that 2018 will be the "beginning of a growth phase" for Gilead. Considering Milligan's reluctance in the past to make projections about when HCV sales will stabilize, those comments are welcome news.
Gilead stock trades at less than 11 times expected earnings. With the "Mount Everest" HIV combo likely coming and the prospects of HCV sales stabilization, January looks like a good time to buy this biotech stock.
You can count on this foundational cancer therapy
Sean Williams (Bristol-Myers Squibb): Keeping with the theme of highly profitable drug developers that appear to be trading at a discount, I'd suggest putting Bristol-Myers Squibb on your radar this January.
Though Bristol-Myers Squibb essentially ended 2017 where it started, it's been reeling somewhat since August 2016, when the company announced that its blockbuster cancer immunotherapy, Opdivo, failed to reach its primary endpoint of a statistically significant improvement in overall survival in a first-line non-small-cell lung cancer (NSCLC) trial. Meanwhile, competitor Merck (NYSE: MRK) announced that its cancer immunotherapy, Keytruda, easily met its primary endpoint in first-line NSCLC. Opdivo had looked like a runaway winner among immunotherapies to this point, but has since given up ground to Merck's Keytruda and proven fallible, adversely impacting Bristol-Myers Squibb's valuation.
But here's the thing about Opdivo and cancer immunotherapies as a whole: They're foundational therapies that could be in use for years or decades to come. While there's no masking the disappointment surrounding Opdivo's first-line NSCLC failure, it remains a foundational therapy for second-line NSCLC, second-line advanced renal cell carcinoma, and advanced melanoma, to name a few indications. Opdivo is also being tested in dozens of additional monotherapy and combination studies, leaving ample room for label expansion.
Investors would also be wise not to overlook the steady growth of Eliquis, the leading oral anticoagulant that Bristol-Myers Squibb and Pfizer (NYSE: PFE) brought to market. Bristol-Myers recognized $3.51 billion in sales for Eliquis, a 47% year-over-year increase, through the first nine months of fiscal 2017. Having essentially mopped the floor with Warfarin in a clinical head-to-head, Eliquis looks to have dug in its heels for years to come.
With Bristol-Myers Squibb, you get the opportunity to take advantage of 5% to 10% annual sales growth rates from Big Pharma, while at the same time hanging onto a company expected to grow EPS by more than 50% between 2016 and 2020. And, to boot, Bristol-Myers also pays a market-topping 2.6% yield. It's certainly worth a look for healthcare-savvy investors.
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Brian Feroldi owns shares of Celgene. Keith Speights owns shares of Celgene, Gilead Sciences, and Pfizer. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool has a disclosure policy.