Where Are They Now

I was pounding the table on healthcare stocks this Summer and the sector has soared. While I am a little less enthusiastic on the sector, I believe there is still value there.

Pharmaceuticals have done well as investors have found a new love for high dividend paying stocks. I believe that large cap biotech offers better value. Companies like Gilead and Amgen (I own both) trade at lower multiples than many pharma companies and offer better opportunities for growth. I believe the discount exists solely because of the dividends. Amgen and Gilead have been returning cash to shareholders via buybacks, which I believe is better than dividends at current valuations. I view large cap biotech as cheap, with pharma at the low end of fair value.

The multiples on the HMOs are still extremely low, although it is difficult for me to judge the political risks so I have taken a pass on this sector other than having had owned it through healthcare ETFs.

Medical devices is an area I am strongly considering investing in. The multiples are low and they don't face the same patent cliff issues that bio-pharma companies face. Additionally, their margins are smaller than bio-pharma companies so there is less room for governments to try and cut into their margins. There is some short term risk as estimates are still coming down. Even though I believe the stocks are more than adequately pricing that in, momentum is more important to most than value.

2 comments:

Anonymous said...

Medical device companies, like large-cap biotechs, are cheap. It is true that it is getting harder to get devices approved and accepted, but this favors the larger incumbents.

Tsachy Mishal said...

I was dying to buy Thermo Fischer when it was under $44 but was already uncomfortably long at the time. What looks most interesting to you now?