U.S. market indexes kicked off the week lower as investors prepare for the start of second-quarter earnings season.
Falling further into bear market territory, the S&P 500 Index slid 1.1% on Monday morning, while the Nasdaq Composite declined 2%. The Dow Jones Industrial Average shed 130 points, or 0.43%.
Similarly, the health care sector is also down so far for the day. While the sector has posted the largest decline year to date, it has seen a small recovery over the past month.
As a result, investors may be interested in finding opportunities among undervalued health care companies that have predictable performances.
GuruFocus’ Undervalued Predictable Screener, a Premium feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.
According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies’ predictability rates are then determined based on historical performance over the past decade.
The screener also looks for companies with predictability ranks of at least four out of five stars.
Based on these criteria, a handful of consumer defensive stocks qualified for the screener as of July 11, including DaVita Inc. (DVA, Financial), AMN Healthcare Services Inc. (AMN, Financial), HCA Healthcare Inc. (HCA, Financial), Elevance Health Inc. (ELV, Financial) and UnitedHealth Group Inc. (UNH, Financial).
DaVita
Shares of DaVita (DVA, Financial) are currently trading 73% below the DCF value of $304 and 55% below the discounted earnings value of $181.
The Denver-based health care company, which provides dialysis services, has a $7.79 billion market cap; its shares were trading around $82.36 on Monday with a price-earnings ratio of 9.81, a price-book ratio of 9.27 and a price-sales ratio of 0.77.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently based on historical ratios, past financial performance and future earnings projections. Potential investors should conduct thorough research before making a decision.
The company has a GF Score of 91 out of 100, indicating it has high outperformance potential. It received high points for profitability, growth and GF Value as well as middling marks for financial strength and momentum.
GuruFocus rated DaVita’s financial strength 4 out of 10. Despite having adequate interest coverage, the low Altman Z-Score of 1.42 warns the company could be at risk of bankruptcy if it does not improve its liquidity. The return on invested capital also overshadows the weighted average cost of capital, so value is being created as the company grows.
The company’s profitability fared better, scoring a 9 out of 10 rating on the back of strong margins and returns on equity, assets and capital that outperform a majority of competitors. DaVita also has a high Piotroski F-Score of 7 out of 9, which implies business conditions are healthy, and consistent earnings and revenue growth that contributed to a four-star predictability rank. According to GuruFocus research, companies with this rank return an average of 9.8% annually over a 10-year period.
Of the gurus invested in DaVita, Warren Buffett (Trades, Portfolio) has the largest stake with 38.16% of its outstanding shares. Larry Robbins (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Joel Greenblatt (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also have positions in the stock.
AMN Healthcare Services
AMN Healthcare Services (AMN, Financial) shares are trading 66% below the DCF value of $328 and 65% below its discounted earnings value of $321.
The health care staffing company headquartered in Coppell, Texas has a market cap of $5.09 billion; its shares were trading around $114.10 on Monday with a price-earnings ratio of 13.48, a price-book ratio of 4.73 and a price-sales ratio of 1.19.
According to the GF Value Line, the stock is modestly undervalued currently.
It also has a GF Score of 89 out of 100, receiving high marks for growth and profitability, middling ranks for financial strength and GF Value and a low grade for momentum. As such, AMN Healthcare has good performance potential.
AMN Healthcare’s financial strength was rated 6 out of 10 by GuruFocus on the back of sufficient interest coverage and a high Altman Z-Score of 3.92 that indicates it is in good standing despite assets building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value is being created.
The company’s profitability scored a 9 out of 10 rating. Although the operating margin is declining, strong returns top a majority of industry peers. AMN Healthcare also has a high Piotroski F-Score of 7, while steady earnings and revenue growth contributed to a 4.5-star predictability rank. GuruFocus found companies with this rank return, on average, 10.6% annually.
With 1.21% of its outstanding shares, Simons’ firm has the largest position in AMN Healthcare. Other top guru investors are Steven Cohen (Trades, Portfolio), Dalio, Greenblatt and Keeley-Teton Advisors, LLC (Trades, Portfolio).
HCA Healthcare
Shares of HCA Healthcare (HCA, Financial) are trading 57% below the DCF value of $392 and 74% below the discounted earnings value of $652.
The Nashville, Tennessee-based company, which owns and operates health care facilities across the U.S., has a $50.40 billion market cap; its shares were trading around $169.89 on Monday with a price-earnings ratio of 8.02 and a price-sales ratio of 0.93.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
The GF Score of 95 out of 100 indicates the company has high outperformance potential. It recorded high points for profitability, growth, GF Value and momentum as well as a middling rank for financial strength.
GuruFocus rated HCA Healthcare’s financial strength 4 out of 10. Although the company has issued new long-term debt in recent years, it is manageable due to adequate interest coverage. The Altman Z-Score of 2.51, however, indicates the company is under some pressure. The ROIC also exceeds the WACC, so value creation is occurring.
The company’s profitability fared better with a 10 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8. Consistent earnings and revenue growth also contributed to HCA’s five-star predictability rank. GuruFocus says companies with this rank return, on average, 12.1% annually.
The Vanguard Health Care Fund (Trades, Portfolio) is the largest guru shareholder of HCA with a 0.88% stake. First Eagle Investment (Trades, Portfolio) and Bill Nygren (Trades, Portfolio) also have significant holdings.
Elevance Health
Elevance Health (ELV, Financial) shares are trading 44% below the DCF value of $852 and 16% below its discounted earnings value of $575.
Formerly known as Anthem, the health insurance company, which is headquartered in Indianapolis, has a market cap of $116.23 billion; its shares were trading around $482.65 on Monday with a price-earnings ratio of 18.91, a price-book ratio of 3.22 and a price-sales ratio of 0.82.
The GF Value Line suggests the stock is fairly valued currently.
Elevance has a GF Score of 88 out of 100, indicating good outperformance potential on the back of high grades for profitability and growth, middling ranks for financial strength and momentum and low points for GF Value.
Elevance’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt over the past several years, it is manageable due to sufficient interest coverage. The ROIC also surpasses the WACC, so value is being created.
The company’s profitability scored a 9 out of 10 rating, driven by strong margins and returns that outperform over half of its industry peers. Elevance also has a high Piotroski F-Score of 8, while steady earnings and revenue growth contributed to a five-star predictability rank.
Of the gurus invested in Elevance, Baillie Gifford (Trades, Portfolio) has the largest stake with 1.73% of its outstanding shares. Vanguard, First Eagle, Ruane Cunniff (Trades, Portfolio), Hotchkis & Wiley, Barrow, Hanley, Mewhinney & Strauss and Glenn Greenberg (Trades, Portfolio) also have notable positions in the stock.
UnitedHealth Group
Shares of UnitedHealth (UNH, Financial) are trading 15% below the DCF value of $609 and 1% below the discounted earnings value of $520.
Based in Minnetonka, Minnesota, the company, which provides health care plans and services, has a $484.99 billion market cap; its shares were trading around $516.95 on Monday with a price-earnings ratio of 28.02, a price-book ratio of 6.62 and a price-sales ratio of 1.66.
According to the GF Value Line, the stock is modestly overvalued currently.
It has good outperformance potential with a GF Score of 84 out of 100. It raked in high points for profitability, growth and financial strength, middling marks for momentum and low points for GF Value.
GuruFocus rated UnitedHealth’s financial strength 7 out of 10. Despite issuing new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 4.10 also indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. Additionally, value creation is occurring since the ROIC surpasses the WACC.
The company’s profitability scored a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, meaning conditions are typical for a stable company. Recording consistent earnings and revenue growth, UnitedHealth has a perfect five-star predictability rank.
Vanguard has the largest stake with 0.72% of UnitedHealth’s outstanding shares. Dodge & Cox, Ruane Cunniff (Trades, Portfolio), Grantham and Barrow, Hanley, Mewhinney & Strauss also have large holdings.
Additional options
Other health care stocks that made the screener included Thermo Fischer Scientific Inc. (TMO, Financial), Universal Health Services Inc. (UHS, Financial), Zoetis Inc. (ZTS, Financial), Edwards Lifesciences Corp. (EW, Financial), IDEXX Laboratories Inc. (IDXX, Financial) and The Cooper Companies Inc. (COO, Financial).
