3 Healthcare Stocks Trading at Attractive Multiples
Erik is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Healthcare stocks, in general, have had a nice rally recently, with many shares outperforming the S&P 500 Index. Despite the rally, some stocks in this sector are still attractively priced. Three that caught my eye also have good growth prospects.
The healthcare sector is broad and covers a wide range of industries, including medical equipment, pharmaceuticals, and biotech. That aspect is important to keep in mind, particularly when examining Albany Molecular Research (NASDAQ: AMRI), which works with hundreds of pharmaceutical, biotech, and agribusiness customers to conduct research and develop new products, while also providing materials needed for large scale manufacturing of existing products.
The company’s revenue climbed 9.2% in the trailing-12-month (TTM) period, accelerating from its five-year average. Similarly, the company has seen its profit margins improve recently. Its operating margin, for example, widened to 6.7%, from a five-year average of 1.7%. Better profit margins and faster revenue growth have also translated into EPS improvement.
Shares have climbed about 30% over the last month, easily outpacing the 2% advance in the S&P 500 Index. Still, the company has solid business prospects for further gains down the road and the stock is attractively priced. It has a price/sales ratio of 1.1, which is a considerable discount to the average for the industry. Based on next year’s expected earnings, shares have a P/E ratio of 14.7, further suggesting that they are worth consideration by value-oriented investors.
Cambrex (NYSE: CBM) provides products and services that help pharmaceutical companies discover and commercialize new human therapeutics, focusing on such areas as cardiovascular, endocrine, and respiratory health, as well as pain management. Revenue has been climbing nicely. Net sales advanced 9% in the TTM period, which is a marked improvement from the company’s five-year average of 1.8%. Also noteworthy is the improvement in profit margins. Its operating margin widened to 12.9%, from a five-year average of 10.6%, thanks at least partially to higher volume sales. Cambrex appears well positioned for continued gains this year; management expects top-line growth of about 10%. A recently penned deal with Dow Chemical (NYSE: DOW) should further help performance going forward.
Cambrex shares have climbed about 6% over the last month, but, with a reading of 1.3, they are still priced at a discount to the industry average on the basis of price/sales. Using next year’s expected earnings, Cambrex has a P/E ratio of 11.9, also suggesting that value hunters looking for exposure to healthcare stocks should take a look here.
Cooper Companies (NYSE: COO) is a medical-device company that operates through two divisions. CooperVision is a key player in the world of soft contact lenses. CooperSurgical, by comparison, manufactures medical equipment for women’s health, such as in-vitro fertilization (IVF). Company-wide sales have been relatively consistent.
Revenue in the TTM period was 8.6%, which is about even pace with the company’s five-year average. The company has new products in the pipeline, including new designs for contact lenses. These should hit the market over the next two years and help the company to grow its top line. Also, it is worth noting that profit margins have improved of late. The company’s operating margin widened to nearly 20%, much better than its longer-term average of 17.2%. This is at least partially the result of improvements in manufacturing efficiency, which should help sustain profit margins and EPS growth going forward.
The stock has climbed about 7% over the last month. This has pushed up the price tag to a price/sales ratio of about 3.5, which is a premium to the industry average. But value investors should not be dissuaded. Once we take into consideration expectations for future earnings, the price tag is more appealing, with a forward P/E of 15.5.
The Bottom Line
The healthcare sector offers investors many growth opportunities. However, in many cases, that growth is already reflected in the stock price. Still, careful value investors can also find appealing stocks in this space, and Albany Molecular, Cambrex, and Cooper Companies all warrant a closer look.
edellith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!