2 Specialized Healthcare Companies With Great Return Potential
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many healthcare stocks traded on the market that an investor can choose from. I've seen numerous articles that claim that many healthcare stocks are good investments because they will greatly benefit from "Obamacare" or because of the aging American population, and/or numerous other reasons. When looking at the healthcare sector, there's "big pharma" to invest in. The makers of medical devices are another option. Drugstores are yet another choice as an investment in healthcare. Here are 2 unique healthcare stocks, however, that are helping to make the lives of those with incurable diseases or conditions better.
HIV and hepatitis C-- incurable but manageable?
Gilead Sciences (NASDAQ: GILD) is the world's largest producer of HIV drugs. Thanks to this company, those with this disease are able to manage it much better. Sales of these drugs also rose in the company's most recent quarter as well, as they beat expectations on both their top and bottom lines. Gilead is also experimenting with a hepatitis C drug, which if approved, could give the company another source of explosive growth. According to Michael Yee of RBC capital Markets (as cited by Bloomberg), “HIV and hepatitis C are going to lead an enormous growth phase from 2014 to 2018 [for the company]... Meanwhile, Gilead is quietly building a hematology franchise as another additional growth driver.”
Gilead, by also researching into blood cancers, is pushing forward with yet another way to make serious diseases more tolerable. Blood cancer drugs will help with the company's growth as well. Gilead currently trades at about 25 times earnings, with a more reasonable forward P/E ratio of 15. The company also currently has 19 analysts that rate it as a buy, three rating it at a hold, and none suggesting to sell.
Other than being the leader in HIV drugs, Gilead has also acquired Pharmasset, which gives them instant access to potentially the first oral Hepatitis C drug (if approved by the FDA). Hepatitis C is expected to continue to grow in the coming years, and analysts have forecasted it to generate over $20 billion in revenue, with the Credit Suisse Group estimating Gilead reaping in up to $3.8 billion in related sales by 2020. Watch Gilead's Hep C drug Sofosbuvir closely, for it is likely to get approved and if it does-- the company will see explosive growth, making today's current share price attractively valued.
Playing the growing diabetes epidemic...
DaVita HealthCare Partners (NYSE: DVA) provides kidney dialysis services for patients suffering from chronic kidney failure, or end stage renal disease (ESRD) in the United States. The company is also a favorite of Warren Buffett, who is gobbling shares up as the company continues to expand. After increasing their position by 1.3% on Jan. 9, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) became the largest owner of the dialysis giant- holding a 14.65% stake in the company. DaVita is now Berkshire's eight largest long-term position as well, according to Forbes. Berkshire, up until December, had apparently been buying about a million shares a month.
Along with a Buffett stamp of approval, the company also has many other positives. The high growth company has increased revenue by nearly 20 percent annually over the last 10 years. The company in 2005 also created the first full-service pharmacy that directs its full attention to kidney patients. DaVita is currently priced at about 21 times earnings, with a forward P/E ratio of about 16.
DaVita is by far the leader in diabetes treatment and is also an explosive grower favored by none other than Warren Buffet. The kidney dialysis market is growing at about 4% a year, with dominate DaVita's consensus annual growth rate over the next five years being projected at around 12.7%. Investing in this dialysis provider is one of the best ways to play the growing global diabetes epidemic.
The bottom line
Gilead and DaVita both occupy niche markets within the healthcare sector. Both are growing revenues at a good clip and have pretty wide moats. Both companies would make good investments for the investor looking to diversify within the healthcare sector, or for the investor searching for solid growth stocks going into the future. Gilead and DaVita both look attractive when considering forward P/E ratios as well. Both companies provide drugs or services that are vital for those with diseases such as HIV, Hepatitis C, or diabetes, and this separates them from the average healthcare stock.
All financial data and company profiles obtained from Yahoo Finance
Jharry1 has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Gilead Sciences. The Motley Fool owns shares of Berkshire Hathaway. 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!