On Wednesday, at the end of the two-day Federal Reserve meeting, Chairman Jerome Powell said the U.S. central bank will keep its target range for the federal funds rate unchanged at 2.25% to 2.5%.
While it is still holding back on making any adjustments to the rate, the Fed could still implement a new round of cuts before the end of the year.Ă‚
Knowing the Fed will proceed with an easy monetary policy is of crucial importance to investors because a reduction in the interest rate will cause U.S. equities to rebound on the stock market.
Investopedia reported that Goldman Sachs recommended several ways investors can outperform following a potential rate cut. One of them is by investing in health care companies. According to the investment bank's analysis, the health care sector was one of the best-performing sectors over the 52 weeks following the beginning of a rate cut cycle, having outpaced the S&P 500 Index by an impressive margin of 9 percentage points on average.
I also screened for health care companies with low debt-to-equity ratios because a lower financial cost following an interest rate cut means an additional source of cash flow for them other than funds generated by strong operations. The margin to have access to loan capital is still ample for these companies as they have a low leverage balance sheet. As a result, these companies will have a war chest of financial resources available in 18 to 24 months to invest in their product pipeline. The positive impact on the share price will follow.
In addition, these stocks are cheap based on a number of key ratios as well as the Peter Lynch value.
Here are the results of my search.
The first company is Regeneron Pharmaceuticals Inc. (REGN, Financial), a New York-based biopharmaceutical company engaged in the discovery, development and production of drugs for the treatment of several medical conditions.
GuruFocus assigned an 8 out of 10 rating for both the company's financial strength and profitability and growth.
Regeneron closed at $310.83 per share on Wednesday for a market capitalization of $34.08 billion. The stock has fallen nearly 17% year to date, underperforming the Nasdaq by 37.2%. The stock has a price-earnings ratio of 14.71 versus the industry median of 28.79, a price-book ratio of 3.80 versus the industry median of 4.1 and a price-sales ratio of 5.17. The closing price on Wednesday was 5.3% above the 52-week low of $295.27 and 42.2% below the 52-week high of $442.
The Peter Lynch chart suggests the stock is not expensive.
The second company is Exelixis Inc. (EXEL, Financial). The California-based oncology-focused biotechnology company engages in the commercialization of new therapies to treat cancer patients.
GuruFocus assigned a rating of 9 out of 10 for the company's financial strength and a rating of 6 out of 10 for its profitability and growth.
Shares of Exelixis closed at $20.97 on Wednesday for a market capitalization of $6.33 billion. The stock has fallen nearly 6.7% year to date, underperforming the Nasdaq by 13.7%. The price-earnings ratio of 10.09 is below the industry median of 28.79, the price-book ratio of 4.75 is slightly above the industry median of 4.1 and the price-sales ratio is 7.7. The closing price on Wednesday was 56.3% above the 52-week low of $13.42 and 20.7% below the 52-week high of $25.31.
The Peter Lynch chart suggests the stock is cheap.
The third company is Nektar Therapeutics Inc. (NKTR, Financial), a San Francisco-based biotechnology company focused on the development of treatments for cancer, auto-immune disease and chronic pain.
GuruFocus assigned a rating of 8 out of 10 for the company's financial strength and a rating of 7 out of 10 for its profitability and growth.
Nektar closed at $35.34 per share on Wednesday for a market capitalization of $6.16 billion. The stock has gained 9.9% year to date, but underperformed the Nasdaq by 12%. The stock has a price-earnings ratio of 10.04 compared to the industry median of 28.79, a price-book ratio of 3.76 versus the industry median of 4.1 and a price-sales ratio of 5.43.
Wednesday’s closing share price was 22.6% above the 52-week low of $29.22 and 97.4% below the 52-week high of $69.76.
The Peter Lynch chart indicates the stock is cheap.
Disclosure: I have no positions in any securities mentioned.
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