The battle in Congress over the Affordable Care Act continues, with more debate and votes over repealing parts of the law also known as Obamacare.
Of course, it’s anyone’s guess where things will wind up. Hard-line conservatives want to repeal it (they lost one vote to do that on Tuesday night), moderates want to modify it and Democrats want to preserve it.
But that shouldn’t bother investors one whit because the bottom line is that health care is a good investment in general. Several stocks in particular are excellent buys no matter what happens on the Hill.
Consider the following:
•Every health-care company that reported results this earning season through last Friday has beaten expectations, according to the latest FactSet earnings insight, although there have been a few misses since then.
•For 2017, the Health Care Select Sector SPDR ETF
is up over 17% year-to-date in 2017 vs. 11% for the S&P 500 index
•Longer term, that health-care ETF is up over 110% in the last five years vs. about 80% for the S&P in the same period.
These stats show plenty of reason to like health care as a long-term investment regardless of the short-term uncertainty because of Congress. The bottom line is that the sector is mostly recession-proof as patients put their health-care expenses before other discretionary spending, and demographic tailwinds continue to create reliable growth industrywide.
So stop sweating the fight over the Affordable Care Act and consider a long-term investment in these five health-care stocks now:
Regeneron Pharmaceuticals Inc.
may give some investors sticker shock based on its $500-plus share price. But we’ve seen plenty of stocks like Amazon.com Inc.
do just fine despite triple-digit (and even quadruple-digit) prices.
For starters, Regeneron is not a sleepy Big Pharma name that is facing patent expirations and decaying revenue. This company is plotting double-digit sales growth this year, and next fiscal year as well.
Furthermore, this biotechnology company has a robust product pipeline. For instance, its Dupixent treatment for eczema finally won approval at the end of March — and many analysts expect this drug to reach $3 billion in annual sales going forward.
And while many health-care reforms are up in the air, Regeneron is only going to benefit from proposals like deregulation and lower tax rates. So it’s either present course and speed or better for REGN in the months ahead.
Considering a 40% return since Jan. 1, that’s a pretty good trend for investors to ride.
Teva Pharmaceutical Industries Ltd.
has had some management challenges as of late, including the sudden departure of a top executive and the ouster of its CEO a few months back. But in the long run, these changes might not be a bad thing given the current slow growth of its generic drugs business and the need for a shake-up.
Meanwhile, the negativity seems overdone as the company now trades for a bargain-basement valuation of just 7 times next year’s projected earnings. It also boasts a 4.2% dividend to boot at current prices.
Besides, while there’s not a lot of growth in generics, there is assuredly a ton of stability as Teva continues to serve cost-conscious patients worldwide. It also doesn’t have the patent risks that other Big Pharma names face as once-profitable blockbusters see sales dry up over time.
For a long-term, low-risk investment, this is a perfect health-care play regardless of the current environment in Washington.
Valeant Pharmaceuticals International Inc.
burned a lot of investors, falling from an all-time high around $250 in 2015 to under $10 earlier this year. The stumbles were a combination of overly optimistic forecasts, overdependence on acquisitions that drove up its debts and overly negative press coverage thanks in part to big missteps by bigwig investor Bill Ackman.
But now that the dust has settled, now may be a great time to consider giving VRX a second chance. Ackman has fully capitulated and quit Valeant’s board earlier this year. The pharmaceutical company is forecast to return to profitability this fiscal year after significant restructuring and asset sales — giving it a forward price-to-earnings in the single digits after its crash. And let’s not forget that the top line is growing 30% this year and forecast to grow another 16% next year to boot.
There is assuredly risk in this trade, and I highly doubt shares will ever see $100 again anytime soon, let alone $250. But the bargain valuation and the ebbing negativity make now a pretty good time for an entry. Given the durable nature of health care in general, Valeant could be a significant outperformer over the next year if it continues to find its footing.
Health-care real estate and senior living properties are as close to a sure thing as you can get right now. Thanks to the unending march of demographics, increasing numbers of older Americans are creating high demand for senior living space and rehab facilities. When you find the right company, structured as a tax-sheltered real estate investment trust REIT, it’s all the better.
That’s what Omega Healthcare Investors Inc.
offers. That, and a tremendous 7.7% dividend for investors who buy at current levels.
Amid the current fight over health-care reforms and a chance that Medicare and Medicaid payments will be reduced, some investors may have their doubts. But Omega Healthcare is not a provider itself, just a landlord, and any changes in health-care regulations are the tenants’ problem to work out. Omega operates “triple-net lease” properties, which means it isn’t liable for the three big add-ons that handcuff other REITs — taxes, maintenance and insurance. Omega quite literally just collects the rent from the health-care companies that lease from it, and that’s that.
Yes, some of the tenants’ pain can trickle down. But this company is seeing sustained growth in both the top and bottom lines, and with a juicy dividend, that risk is more than outweighed by the potential rewards.
Johnson & Johnson
It’s almost a cliché to recommend health-care giant Johnson & Johnson
because of its dividend and stability, but it’s a common stock pick for good reason.
For starters, it’s hard to match the bulletproof balance sheet of this megacap stock. J&J is one of only two U.S. corporations with a triple-A credit rating (Microsoft Corp.
is the other.) It also has a cool $39 billion in the bank, and free cash flow of $15 billion annually.
It’s also worth noting those secure finances support a great dividend and buyback strategy. A $10 billion repurchase plan announced at the end of 2015 has almost been fully executed, with $8.6 billion spent on buybacks as of April, and there’s hope of bigger buybacks to come. The company also yields 2.6% and has increased its dividend annually for an amazing 55 consecutive years. And since that payout is less than half this year’s projected earnings, there’s plenty of room for future increases, too.
Sure, growth is hard to come by considering J&J’s maturity and existing scale. But if you’re looking for a bulletproof play, they don’t get any safer than this.
Ignore the Obamacare fight in Congress and buy these 5 health-care stocks