The healthcare industry is watching the Trump presidency closely. President Trump's promise to repeal and replace Obamacare hit repeated stumbling blocks in Congress. Despite the uncertainty surrounding these efforts to overhaul the nation's healthcare system, a number of healthcare stocks rose dramatically throughout 2017. In fact, the Health Care Select Sector SPDR ETF (XLV), which is the largest exchange-traded fund (ETF) tracking the sector, returned an impressive 21.77% last year.
In this article, we take a look at three healthcare stocks – all included in the XLV ETF portfolio as of Oct. 10, 2018 – that could offer additional upside in the remainder of the year. We chose stocks of companies that offer products that are in high demand or could be in high demand when they are approved by the Food and Drug Administration (FDA). It remains to be seen how the regulatory environment will progress for healthcare companies, but there are some clear winners that could continue to generate profits for investors. All figures are current as of Oct. 10, 2018. (See also: Healthcare ETFs See Modestly Higher Valuations.)
Celgene has carved out a space in the treatment of cancer. It has products on the market currently that are in demand for fighting various cancers and inflammatory diseases. The company sells its products to markets worldwide. Forecasts suggest that spending on cancer treatments will reach $150 billion by the year 2020, and Celgene is likely to be one of the leaders in cancer care. Sales of its drugs are increasing dramatically.
Celgene stock saw dramatic declines in October 2017, affected in part by a downgrade from research firm Morgan Stanley. The shares continued to struggle through the first half of 2018, suffering declines of over 20% over that six-month time frame. The stock bottomed out under $75 in May before returning to current levels of $84.23. The market appears concerned about recent negative clinical trial results and Celgene's expensive deals to acquire Impact Biomedicines and Juno Therapeutics at the start of 2018. However, the acquisitions could help revitalize Celgene's product pipeline and boost revenues, and given the company's track record, the recent pullback could represent a buying opportunity. The stock makes up 1.66% of the XLV ETF's holdings. (For more, see: Celgene's Stock May See More Big Gains Ahead.)
UnitedHealth is one of the more impressive players in the healthcare field. It offers healthcare plans to consumers and employers, and it also has plans for military personnel. Furthermore, the company offers Medicaid plans, children's plans and plans for the elderly. UnitedHealth has an extensive network of physicians and hospitals that use its plans. It also markets software and information technology. The stock is the third largest portfolio holding (7.08%) in the XLV ETF.
UnitedHealth stock increased sharply starting on Oct. 17, 2017, in a positive reaction to the company's third quarter earnings report. The market's positive response may have been related to the company's solid guidance, which called for earnings growth of 13% to 16% in 2018, with a possible boost from new insurance products supported by the Trump administration. The stock saw some volatility in the first quarter of 2018, but it has continued its upward climb in recent months, posting all-time highs above $271 per share earlier in October. Although the stock price has ticked downward to around $263 ahead of UnitedHealth's third quarter earnings report, the robust recent performance suggests that investors see healthy prospects for this major industry player. (See also: How UnitedHealth Group Makes Its Money.)
- Average Volume: 2,444,336
- Market Cap: $253.207 billion
- P/E Ratio (TTM): 21.90
- EPS (TTM): $12.01
- Dividend and Yield: $3.60 (1.34%)
Stryker markets medical equipment – this focus keeps it out of the debate about how much the government should dictate drug prices. The company has provided 10 uninterrupted years of revenue growth. Stryker markets to three healthcare areas: orthopedics, surgical equipment and supplies, and brain and spine surgery based on advanced technology.
The stock remained in an uptrend through the end of 2017. After matching the market's volatile performance in the opening months of 2018, Stryker shares posted additional gains into an all-time high of nearly $180 in early June. Stryker is currently trading at $171.15 per share. The stock's 50-day moving average remains above its 200-day moving average, which is a bullish indicator. The company has been enhancing its growth potential via acquisitions, and in June 2018, Stryker agreed to acquire SafeAir, a Switzerland-based company that offers technology to evacuate the smoke generated by certain surgical procedures. The stock makes up 1.49% of the XLV ETF's holdings. (For more, see: Stryker Corporation: A Strong Capital Position.)
- Average Volume: 1,171,861
- Market Cap: $64.008 billion
- P/E Ratio (TTM): 60.43
- EPS (TTM): $2.83
- Dividend and Yield: $1.88 (1.08%)
The Bottom Line
The healthcare industry is an iffy play under the best of circumstances. To be sure, a portion of the action on these three stocks last year was based on the belief that President Trump would be good for the sector. It is important to watch what happens from a political and regulatory standpoint, and investors should keep an eye out for increased earnings and higher revenues. These three stocks could be poised for a strong performance in the remaining months of 2018. (For additional reading, check out: Investing in the Healthcare Sector.)