Healthcare stocks have been a focus of investors since the beginning of the COVID-19 pandemic a year ago. From accurate diagnosis in the initial days, to the issuance of emergency use authorization (EUA) for vaccines, to new vaccine candidates lately, investors have been eyeing the sector’s developments closely.
In addition to drug developers, healthcare players including pharmacy chains, hospitals, biotech, and diagnostic service providers have also performed consistently well. Positive developments surrounding the COVID-19 vaccine have heightened people’s optimism regarding the development of cures for other diseases that are chronic or life threatening. Also, the ageing population in the United States and rising healthcare spending position the sector well for solid growth.
Investors seeking healthcare stocks to hold for long-term now have many cheaper options from which to choose. AbbVie Inc. (ABBV), CVS Health Corporation (CVS), GlaxoSmithKline PLC (GSK), and Takeda Pharmaceutical Company Limited (TAK) are four undervalued healthcare stocks that have significant upside potential. We think these companies offer a blend of stability, strong fundamentals, and innovative solutions.
AbbVie Inc. (ABBV)
ABBV is a pharmaceutical company involved in discovering, developing, manufacturing, and commercializing drugs. The company operates in leading countries such as the United States, Brazil, Canada, Japan, France, Germany, Spain, Italy, the Netherlands, and the United Kingdom. Among the well-known drugs manufactured by ABBV are HUMIRA, a therapy for autoimmune and intestinal Behcet's diseases, SKYRIZI a treatment for moderate to severe plaque psoriasis, and IMBRUVICA, a treatment for chronic lymphocytic leukemia (CLL).
During the fourth quarter, ended December 31, 2020, ABBV’s revenue climbed 59.2% year-over-year to $13.8 billion, led by revenue from its immunology and hematologic oncology portfolio. Its EPS for the quarter is $0.01, a decline from $1.88 posted in the same period last year.
Analysts expect revenue for the quarter ending March 31, 2021 to be $12.8 billion, representing 48.6% year-over-year growth. Its EPS is likely to grow at the rate of 4.8% per annum over the next five years.
ABBV is trading at an attractive valuation. In terms of its forward p/e, it is currently trading at 13.26x, which is much lower than the industry average 33.16x.
ABBV has risen 0.7% on a year-to-date basis to close yesterday’s trading session at $106.69. Over the past six months, the stock has gained 14.8%.
ABBV's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
ABBV also has an A grade for Value. Of 240 stocks in the Medical - Pharmaceuticals industry, it is ranked #16.
In addition to the POWR Ratings grades I've just highlighted, you can see ABBV ratings for Growth, Sentiment, Stability, Quality and Momentum here.
CVS Health Corporation (CVS)
CVS is a healthcare service provider in the U.S. The company’s pharmacy services include pharmacy benefit management solutions, which include retail pharmacy network management, plan design and administration, and formulary management.
CVS’s revenue for the fourth quarter, ended December 31, 2020, rose 4% year-over-year to $69.5 billion, led by growth in the health care benefits and retail/LTC segments. Its EPS for the quarter declined to $0.75 from $1.33 posted in the prior year period. And its enterprise prescriptions for the quarter rose 1.1% over the year to 742.1 million.
Analysts expect CVS’s revenue for the quarter ending March 31, 2021 to be $68.3 billion, representing a 2.4% year-over-year increase. Its EPS is expected to grow at the rate of 3.8% per annum over the next five years.
The stock is also quite undervalued currently. It has a forward ev/ebitda of 9.11x versus the industry average 20.88x.
CVS ended yesterday’s trading session at $69.03, rising 7.7% year-to-date. During the past six months, CVS has gained 13.2%.
CVS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and a B grade for Stability. It is ranked #1 of 5 stocks in the B-rated Medical - Drug Stores industry.
In total, we rate CVS on eight different levels. Beyond what we stated above we also have given CVS grades for Growth, Sentiment, Momentum, and Quality. Get all the CVS ratings here.
GlaxoSmithKline PLC (GSK)
GSK is a global healthcare leader involved in discovering, developing, manufacturing, and marketing pharmaceutical products, over-the-counter medicines, vaccines, and other consumer health products in the U.S., U.K., and other countries. pharmaceuticals, pharmaceuticals R&D, vaccines, and consumer healthcare are the four segments through which it operates.
During the fourth quarter, ended December 31, 2020, GSK’s turnover rose 1% year-over-year to GBP34 billion. Its EPS for the quarter climbed to 115.5 pence from 93.9 pence posted in the prior year period.
The consensus revenue estimate for the quarter ending March 31, 2021 is $11.9 billion, indicating a 2% increase year-over-year. Meanwhile, EPS is likely to increase at the rate of 4.7% per annum for the next five years.
GSK is one of the best value stocks in the healthcare space now. It’s trailing-12-month ev/sales of 2.60x is much lower than the industry average 8.71x.
Year-to-date, GSK has declined 7.4% to end yesterday’s trading session at $34.27. Over the past six months, the stock has declined 14.6%.
GSK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. GSK has an A Grade for Value, and a B Grade for Quality and Stability. In the Medical - Pharmaceuticals industry, it is ranked #20.
Click here to see the additional POWR Ratings for GSK (Growth, Momentum and Sentiment).
Takeda Pharmaceutical Company Limited (TAK)
TAK is a Japanese healthcare giant engaged in researching, developing, manufacturing, and selling pharmaceutical products, quasi-drug consumer products, over-the-counter medicines and other healthcare products. The company operates mainly in gastroenterology, oncology, neuroscience, and rare diseases such as metabolic and hematology.
For the third quarter, ended December 31, 2020, TAK’s revenue declined 3.6% year-over-year to JPY 2.4 trillion. However, its underlying revenue growth for the third quarter was 1% for the quarter, led by strong growth in ENTYVIO, TAKHZYRO, and Immunoglobulin. Its EPS for the quarter climbed to JPY 115 from JPY 87 posted in the prior year period.
Analysts expect TAK’s revenue for the quarter ending March 31, 2021 to be $7.3 billion, representing a 1.2% year-over-year increase. Its EPS is expected to grow at the rate of 0.6% per annum over the next five years.
TAK’s is currently undervalued. It’s trailing ev/ebitda of 13x compares to the industry average 20.88x.
TAK ended yesterday’s trading session at $17.70, declining 5.3% year-to-date. During the past six months, TAK has lost 7.2%.
TAK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and Value, and a B grade of B Stability. It is ranked #7 among 485 stocks in the Biotech industry.
In total, we rate TAK on eight different levels. Beyond what we’ve stated above we have also given TAK grades for Sentiment, Momentum, and Quality. Get all the TAK ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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ABBV shares were trading at $107.23 per share on Thursday morning, up $0.52 (+0.49%). Year-to-date, ABBV has gained 1.25%, versus a 2.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education.
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