Three Healthcare Stocks Top My Watch List
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Having just added a health care REIT to my paper trading portfolio that I call the “No Drip, No Mess” Portfolio I’m looking to add a few industry related companies to my watch list. Today I am adding three companies that work to improve the lives of both patients and doctors while saving money in the process. I’ll look to add one of these companies to the portfolio in the future though I believe that each of these companies has the potential to reward investors for years to come.
athenahealth (NASDAQ: ATHN) provides of cloud-based business services for doctor offices. They provide three basic services to their nearly 30,000 clients: practice management, electronic health records and patient communication services. Athena focuses on smaller medical practices and helps them become more efficient by digitalizing records and optimizing the billing process. This has helped their clients get paid more and paid faster by helping to eliminate errors. Led by an engaged and enthusiastic founder, Jonathan Bush (related to former President Bush), I’ll be watching how they continue to innovate in order to help drive costs down in the system as well as their ability to upsell new products to their current customers while continuing to add new customers.
Maker of the Robotic-Arm Interactive Orthopedic System or RIO, Mako Surgical (NASDAQ: MAKO) has hit a rough patch since reporting earnings as the stock is down about 40% over the past three months. They concern is that this robotic surgical maker won’t follow in the footsteps of fellow robotic surgical system maker Intuitive Surgical (NASDAQ: ISRG) as their growth seemed to stall a bit. Mako is not yet profitable and they have had to issue a lot of dilutive stock to fund their growth. Intuitive on the other hand is very profitable and continues to grow at a healthy clip. The one number to watch for Mako will be their RIO system sales. Last quarter they just sold six of them causing management to water down full year guidance. If system sales fall below expectations again it could mean more pain for investors.
SXC Health Solutions (NASDAQ: CTRX) is up over 30% the past three months thanks to good earnings and signing a deal to buy Catalyst Health Solutions (NASDAQ: CHSI). I like their business model of combining a PBM with a technology company. This gives them a tremendous advantage when negotiating deals as they can start off by offering their technology and then work to win the full PBM suite. The combination with Catalyst really helps to give them a much larger presence in the industry which has been consolidating of late. SXC is up several hundred percent over the past few years but I still think there is a lot of upside as they work to take market share from their much larger competitors. I’ll be watching how well integration with Catalyst goes and to see if they are able to now win larger deals away from their comitition.
One of the benefits of the portfolio structure I’m espousing is that we’ll already have reduced our investment risk by only investing those funds we’ve made from dividends and option income in smaller positions across several high growth stocks. Of these three I am currently more inclined to add Mako to the portfolio first. I think that the recent selloff is overdone and that if they can stabilize their growth the shares have a whole lot of upside. While I do not think they are the second coming of Intuitive, I do think they’ll be an excellent investment for those with a long term outlook. I might look to add half of the position before earnings and the rest if it appears last quarter was just a blip. Do you have another healthcare related investment you like better than the three I’m looking at? Sound off in the comments below.
latimerburned owns shares of Athenahealth, Intuitive Surgical, MAKO Surgical , and SXC Health Solutions. The Motley Fool owns shares of Intuitive Surgical and MAKO Surgical. Motley Fool newsletter services recommend Athenahealth, Intuitive Surgical, MAKO Surgical , and SXC Health Solutions . 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.If you have questions about this post or the Fool’s blog network, click here for information.