Seek Safety in Two Health Care Stocks

 | Jun 26, 2012 | 1:00 PM EDT
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Monday provided the start to another rocky week in the market. Investors were awaiting the latest news from Europe as well as the Supreme Court decision on the Obama administration's health care overhaul. The market received very little news on either. We should have clarity on the court's decision by Thursday, as Europe looks to be a soap opera that is going to run for some time. Regardless of the ultimate outcome for Obamacare, the healthcare sector is a good defensive area for investors to hide until the market gets better news from Europe, as well as clarity on the direction of worldwide growth.

Here are two cheap health care stocks that should do fine even in a turbulent environment and have had strong recent insider buying.

United Therapeutics (UTHR) is a biotechnology company that develops therapeutic products for patients with chronic and life-threatening diseases in the U.S. and internationally.

Four reasons UTHR looks like a buy at $47 a share:

  • A director picked up more than $1.5 million in new shares earlier this month. The company also has a solid balance sheet with net cash on the books.
  • The stock is selling at the very bottom of its five-year valuation range based on price/earnings, price/sales, price/book and price/cash flow ratios.
  • The market is deeply discounting the company's growth prospects. UTHR grew revenues at a better than 30% annual clip over the past five years. Even though growth is slowing, analysts still expect sales growth in the teens for both 2012 and 2013. The stock has a minuscule five-year projected price/earnings/growth ratio of 0.45, as well.
  • United Therapeutics is selling for 9.5x forward earnings, a steep discount to its five-year average (29.2). It also increased its operating cash flow 250% from 2009 to 2011 and sells for around 10x operating cash flow.

PharMerica (PMC) provides pharmacy services to health care facilities and hospitals in 44 states.

Four reasons PMC offers value at just over $10.50 a share:

  • The stock is very cheap at just 75% of book value and 15% of annual sales.
  • Three insiders stepped up and bought more than $500,000 in new shares in early June. Analysts also like the stock at these levels. The seven analysts that cover the stock have a median price target of $15 a share.
  • The company has consistently beaten earnings estimates. It has served up a beat for the last six quarters and the average beat over consensus during the last four quarters has averaged an impressive 40%.
  • PMC sells for less than 8.5x forward earnings, a deep discount to its five-year average (17.9).

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