The market outlook for the healthcare sector is positive, with increased demands for new products, new age product lines formulated by various healthcare companies and innovative supply retail chains implemented by pharmacy outlets across the globe.
As the sector is expected to grow in the near future, one has to make a careful selection of companies within the sector, having appropriate levels of safety margin and which could be termed medium to long-term investments. Along with companies which engage in manufacturing, production, development and marketing of pharmaceutical products, one should also include those companies which are involved in research, as well as engaged in use of innovative techniques in rendering pharmaceutical outputs. Likewise, those companies which are engaged in retail distribution and logistics should also be included in one's portfolio of healthcare stocks. Similarly, it is pertinent for one to scan through a company's products in pipeline, as well as study its existing line of products.
The following are certain companies which are relatively safe for investing at their current market price, while keeping a medium to long-term perspective.
Gilead Sciences (GILD) specializes in rendering innovative services in the arena of therapeutics and certain areas of medicine which still remain unmet in the current healthcare scenario. Its current market price is around $55, within its 52-week range of $56 and $34. The market capitalization of the company is around $41.18 billion, whereas its earnings per share and price earnings are around $3.5 and $15 respectively. In 2011, Gilead Sciences has risen by around 12%.
The company has gained immense popularity due to its strategy implemented in formulation of its existing range of HIV related drugs. The strategy involved formulating fixed dose combination in the existing drugs pertaining to AIDS/HIV. Its range of drugs pertaining to HIV/AIDS is well recognized as the top-bracket franchise, efficiently negotiating all hurdles of commercial as well as clinical usage.
UnitedHealth Group (UNH) is one of the prominent healthcare service providers in the U.S., catering to people through all stages of medical assistance. Its current market price is around $54.64, almost nearing its 52-week high of $54.84. With earnings per share of around $4.73 and a price earnings ratio of around $11.50, UnitedHealth Group has a market capitalization of around $57.08 billion. The company is well positioned in the healthcare service provider segment, with its unique selling proposition inherent in its Medicaid segment. The company returned approximately 42% in 2011.
Its Medicaid service attracts a strong membership base and has potential to garner better revenue growth for the company. UnitedHealth Group has the capability to look into the mergers and acquisition of non-health related business, mainly due to its adequate financial standing, being reflected from its strong balance sheet.
Stryker Corporation (SYK) is engaged in rendering technology to specialty areas of medical science such as orthopedics and similar arenas of medicine. Its stock is currently trading at around $54, within its 52-week range of $65 and $44. Having price earnings of around $15.5, and earnings per share poised at $3 approximately, Stryker Corporation has market capitalization of around $20 billion. The company enjoys a diversified network globally, with around 30% of its sales sought from overseas.
The MedSurg segment of the company's business has launched several products from which the company will expect surge in its revenue generation potential. Stryker Corporation can further enhance its well diversified portfolio, with like additions such as that of the Neurovascular business, acquired by it from Boston Scientific.
Walgreens (WAG) engages in providing services in healthcare through its chain of pharmacy stores throughout the U.S. The current market share of the company is around $33.81, within the 52-week range of $47 and $30.34. With price earnings of around $11.70, and earnings per share of around $3, Walgreens has a market capitalization of $30 billion.
The company strives consistently to benefit from improved earnings through implementation of various strategies such as consumer-centric retailing plans. With a beta of around 0.97, Walgreens depicts a lower price earnings ratio than most of its peers. Likewise, compared to its contemporary pharmacy companies, Walgreens is not categorized purely in the healthcare sector. The company floats in the category of service providers, wherein healthcare remains the most prominent segment of its business. As a stock with low debt, I would recommend purchasing Walgreens on the basis of its margin of safety.
Covidien Plc (COV) is a global leader engaged in providing its customers with high-end pharmaceutical products at economical rates. The company is currently trading at around $52, with its 52-week highs and lows of $58 and $41. The company has market capitalization of $25 billion, and having earnings per share and price earnings of around $4 and $13 respectively. The company has dividend yield of around 1.70%, with an average of 0.90 per share dividend rate.
Positive outlook expected in 2012 for the healthcare sector should be beneficial for Covidien Plc especially due to its recent acquisition of BAARX Medical Inc. The stock still has a potential of approximately 40% upside from its current market price. Moreover, the company is known to undertake effective quality control measures to avoid any obstacles, which would otherwise hamper its business functioning.