3 Hearty Healthcare Investments

By Aryeh Katz | August 06, 2010 AAA

The market's healthcare sector is coming off a very bad year compared to the S&P 500. Relatively speaking, no sector has done worse except for of the telecoms. But not all healthcare stocks have been underperformers.

Healthcare, in fact, might be better considered under two separate groupings: 1) those old-line, mega market cap drug and equipment manufacturers, and 2) the younger, more explosive biotech and experimental drug companies.

Below we highlight both types - three companies that possess some of the best fundamentals in the field, big and small, from pharmaceutical giants to geriatric care specialists.

IN PICTURES: 8 Great Companies With Top-Notch Healthcare Benefits

Outpacing All Relevant Averages

One of the world's biggest drug companies is Pfizer (NYSE: PFE), possessing a market cap approaching $132 billion. After bottoming a month ago with the general market, Pfizer's shares have climbed over 15%. That outpaces both the broader healthcare sector, as represented by the Health Care SPDR ETF (NYSE: XLV), which has risen just over 5% over the same period, and the SPDR S&P 500 ETF (NYSE: SPY), which has climbed 10%. Pfizer trades with a P/E ratio of 13 and offers a dividend yield of 4.4%.

The company was recently embarrassed at the hands of the Food and Drug Administration (FDA), which admonished the drug giant for a dozen violations of agency rules. A letter was sent to Pfizer executives outlining the need to report adverse reactions from its products to the agency within a specified time period.

Strong Five-Year Growth Rate

Sanofi-Aventis SA (NYSE: SNY) is a Paris-based, global pharmaceutical giant with a market cap in excess of $80 billion. The company operates primarily in the field of vaccines for both humans and animals. SNY stock has climbed 4% since the market bottom of a month ago and pays a dividend of 4.8%. P/E on the stock is 11, and Price-to-Book (P/B) ratio is 1.15. For the last five years, SNY has grown sales at a rate of 14.34%.

National HealthCare Corp. (NYSE: NHC) operates 76 long-term health and assisted living centers, primarily in the southeastern United States. In the last month the stock has climbed 3%. It pays an annual 3.2% dividend and trades with a one-year trailing earnings multiple of 14.5. P/B on the stock is a mere 1.32, and price-to-sales ratio is just 0.71.

The Wrap

The best healthcare stocks are those with the fundamentals behind them. Should the broad market finally find its legs, look for the above three issues to lead the healthcare pack higher. (To learn more, see Investing In The Healthcare Sector.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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