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Keep Calm and Invest On: Three Stocks to Survive the Government Shutdown

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A look at the health care stocks that are trading below even the lowest target price set by analysts.

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US government employees stayed home yesterday – in the first government shutdown in 17 years – but the markets didn't seem to notice. European and US stocks climbed yesterday morning, rising above the endless bickering coming out of Washington.

But the media remains transfixed on what they consider the central question: Who is to blame?

Much attention has focused on Republican lawmakers. They have made one futile attempt after another to stop the Affordable Care Act (also known as Obamacare) ever since it was passed, including during this week's government spending debates. But now the joke is on them, in a way: Funding for the health care law was already put in place, and will not be impacted by the shutdown.

Also not affected by this pause in governing is Congressional payroll. Meanwhile national parks, museums, and NASA are definitely closed, and programs like the Veterans Administration disability claims as well as the IRS will likely shut their doors.

But the markets, and analysts, don't seem to mind. So does that mean investors should operate as normal? Not necessarily. The debt ceiling debate coming up later this month could have a far greater impact on the markets.

Investing ideas

We decided to turn to one of our favorite screens – finding stocks trading below even the lowest target price set by analysts. And since the Affordable Care Act is rolling out despite conservative opposition, we focused on the health care industry.

First we searched for health care stocks that are trading at significant discounts to their fair value based on analyst target price, with the assumption that they will move up to their fair value in the near future.

We only included stocks with five or more analyst ratings. And because analyst prices are notoriously inflated, we compared current price to the lowest target.

Besides screening for seemingly rock-bottom prices, we also wanted to find signs of growth going forward, so we narrowed our results based on 5-year projected earnings per share (EPS) growth, a signal that investors see strong long-term growth potential.

Limiting our list to those health care stocks with projected EPS growth above 15%, and a market cap above $500 million, three stocks remained.

Do you see investment opportunities despite the actions of our lawmakers? Use the list below as a starting point for your own analysis.

1. Keryx Biopharmaceuticals Inc. (NASDAQ:KERX): KERX focuses on the acquisition, development, and commercialization of pharmaceutical products for the treatment of life-threatening diseases, including cancer and renal disease. (Market cap at $825.57M, most recent closing price at $10.10.)

Of the 10 analysts who have set a target price on the stock, the lowest price target stands at $12. This implies a potential upside of 18.81% from current levels around $10.1.

EPS growth next five years: 30.00%

2. Cardiovascular Systems Inc. (NASDAQ:CSII): CSII focuses on developing and commercializing interventional treatment systems for vascular disease. (Market cap at $485.13M, most recent closing price at $20.07.)

Of the six analysts who have set a target price on the stock, the lowest price target stands at $24. This implies a potential upside of 19.58% from current levels around $20.07.

EPS growth next five years: 20.00%

3. Ariad Pharmaceuticals Inc. (NASDAQ:ARIA): ARIA focuses on the discovery, development, and commercialization of small-molecule drugs for the treatment of cancer. (Market cap at $3.45B, most recent closing price at $18.69.)

Of the 21 analysts who have set a target price on the stock, the lowest price target stands at $22. This implies a potential upside of 17.71% from current levels around $18.69.

EPS growth next five years: 19.60%

Editor's note: This story by Emily Smykal originally appeared on Kapitall.

Kapitall's lists break complex concepts down to their basics, offering education and investing ideas to novices that double as a refresher course for more seasoned investors. Inspired by video game design, Kapitall's revolutionary brokerage platform combines a graphical user interface with tools that make it easy to build portfolios, share ideas and execute trades.

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No positions in stocks mentioned.
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