The Biggest Growth Stocks in Health Care
With reform on the back burner, look for these stocks to outperform this year.
"Last night's State of the Union address showed what we thought was a more tepid level of Obama support for continuing to fight the health-care reform fight than we anticipated; jobs and the economy are areas of more primary focus and electoral reward for legislators," said Leerink Swann analyst John Sullivan.
With Obama's health-care reform now about as likely as a pig taking flight, investors are placing bets on health-care stocks. As of Wednesday's close, most health-care indices this month have been outperforming the S&P 500, which is down 1.6%. Meanwhile, the S&P 500 Health Care is up 1.6%, and the S&P 500 Biotech is up 5.3%. The AMEX Pharmaceutical Index is only up slightly at 0.8%, but the AMEX Biotech is up 3.2%, while the NASDAQ Biotech is ahead by 2.7%.
After taking a look at the S&P 1500 Health Care Stocks, FactSet and Leerink Swann provided a list of the health-care companies that are most likely to grow this year -- one list showed the biggest top-line growers and another ranked them by earnings-per-share growth. The screen excluded stocks that conducted major acquisitions in 2009 that had sales of less than $100 million, and that had a negative EPS.
The only company that made it into the top five of both lists was United Therapeutics (UTHR). The data showed that its sales grew 30% from 2008 to 2009 and are expected to grow 36% year-over-year in 2010 to $495 million. Leerink Swann estimates that United Therapeutics's earnings per share will grow 139% to $1.69. The company is currently trading at about $57 and has a price to earnings ratio of 34. The company received approval for its fourth drug in July 2009. Tyvaso, a treatment for pulmonary hypertension, has been a major stock price catalyst for United Therapeutics. United Chairman Martine Rothblatt has said that the company expects to have more than 1,000 patients using Tyvaso by the end of the first quarter -- the drug costs about $100,000 annually per patient.
Salix Pharmaceuticals (SLXP) topped the list for the most revenue growth in 2010. The company, which specializes in drugs for the treatment of gastrointestinal problems, had 29% sales growth from 2008 to 2009, and the data shows that its sales could continue to grow as much as 46% in 2010 to $338 million. The growth will likely be driven by its Xifaxan. The drug is currently approved for traveler's diarrhea, but the company is hoping it will also get approval for its use as a treatment for hepatic encephalopathy. The FDA is expected to make a decision by March 24.
Analog (ALOG) comes in second behind United Therapeutics on the list of companies expected to have high earnings-per-share growth. The medical imaging and security system manufacturer currently trades just under $40. Its earnings per share are expected to grow 120% to $1.66 in 2010. Analog has a P/E ration of 24. The company recently announced that it received an order valued at $10 million for its subsystem that is used in explosive detection systems as a means of detecting bombs on planes. The order is expected to start shipping in the second quarter of this year.
Genzyme (GENZ) also landed on the list of earnings-per-share growers in 2010. The company, which has been in the headlines of late for its role in the Hollywood movie Extreme Measures, is expected to have EPS growth of 53% in 2010 to $3.41 per share and to have a P/E ratio of 16. The company is currently trying to dig itself out of a hole after a slew of manufacturing problems. Its Gaucher disease treatment Cerezyme began shipping in December and is expected to break into blockbuster territory ($1 billion in revenues) by the end of the year.
Generics drugmaker Watson Pharmaceuticals (WPI) is expected to have major top-line growth in 2010 -- about 27% to hit sales of $3.47 billion. The company has been working on strengthening its generic business (it makes the generic forms of several popular birth control pills), which is expected to account for about $2 billion of its revenues in 2010. Watson is also building up its branded business with the expansion of its urology and women's health-care portfolio.
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