Biotech and Beyond: 8 Favorite Healthcare Stocks for 2019

Each year MoneyShow.com asks the nation's leading financial newsletter advisors for their top stock picks. In this year's survey, eight experts picked healthcare stocks in markets from small-cap genetics and biotech firms to large-cap drug distributors and pharmacies. Tony Daltorio, Growth Stock Advisor With a better understanding of genetic mutations, doctors will then be able to provide cancer treatment therapies that specifically target changes in the cancer's genomic profile. Information on the genomics of a patient's unique cancer will let doctors better determine the appropriate course of treatment -- in effect, precision cancer treatment focusing on a person's individual cancer. Genomic Health is our top pick for aggressive investing in 2019. With its Oncotype IQ Genomic Intelligence Platform, the company is a pioneer in the translation of clinical and genomic big data into actionable results for treatment planning for cancer patients. A study published in The New England Journal of Medicine found that many women with early-stage invasive breast cancer could safely forgo chemotherapy, if they score in the mid-range or lower for risk that their cancer will recur, as measured by Genomic Health's Oncotype DX. Genomic Health is more than a one-trick pony. It is also a leader in testing for prostate cancer in men with its Oncotype DX test that takes a sample from a prostate biopsy and analyzes 17 genes in it to estimate how aggressive a cancer may be. The company continues to expand its range of tests, making Genomic Health a buy in this new exciting field. Tyler Laundon, Cabot Small-Cap Confidential Repligen is a pure-play supplier of bioprocessing technologies. It is a market leader in proteins (over 95% market share), where it has a near monopoly. The company is as much a partner as a supplier to its customers given the heavily regulated nature of bioprocessing and the strategic importance its products play in the drug approval and manufacturing process. Customers are large biopharmaceutical companies and contract manufacturing organization, life science companies, diagnostic companies and laboratory researchers. The 60/40 mix of clinical and commercial exposure gives Repligen a relatively stable, long-term growth profile. Repligen has grown revenue at an average annual rate of 31% for the past three years and EPS at an average pace of 38%. In 2017, revenue jumped 35% to $141 million while EPS soared 43% to $0.70. Through the first three quarters of 2018 revenue was up 43% while EPS was up $0.02 to $0.52. Management updated 2018 revenue guidance above consensus ($188 million) to a range of $191 million to $194 million (implying 35% to 37% growth) and adjusted EPS above consensus ($0.71) to a range of $0.71 to $0.75. Repligen ended Q3 with $190 million in cash and equivalents, implying plenty of room for more M&A activity. John McCamant, The Medical Technology Stock Letter 2018 was a difficult year for The Medicines Company ; in our view, 2019 will be a turnaround year, making this our top speculative pick. Our confidence is boosted by the company's activist board of directors, which is led by M&A specialist Alex Denner. Denner recently pressed long-time CEO Clive Meanwell to step aside. The new CEO Mark Timney is a healthcare leader with over 25 years of industry experience in multi-national Big Pharma companies. The other overhang in investors' eyes was the need for additional financing; right after the CEO change, the company announced that it is raising $150 million via a convertible debt offering. In our view, the two major overhangs for the stock have now been removed and The Medicines Co. still remains an incredibly undervalued risk-reward situation, setting the stage for a rebound in 2019. The company also remains a prime takeover candidate with a fully owned late-stage asset, inclisiran, which is a second-generation RNAI-based PCSK9 inhibitor that has demonstrated 50+% reductions in LDL. Tap here to read MoneyShow's Top 100 Stock Picks for 2019! Nate Pile, Nate's Notes For speculative investors, one of my favorite stocks is Catasys . This up-and-coming company has developed a proprietary data analysis platform that it combines with predictive modeling techniques to identify individuals in healthcare plans whom may not be receiving the support they need to treat chronic conditions. When these individuals do not successfully manage their underlying conditions, they can end up also costing the plan a great deal of money on other secondary items like ambulance transports and visits to the ER that can be prevented (or minimized) with even a small increase in the amount of support that is provided to the patient. Once individuals in a plan have been identified as good candidates for success, Catasys' OnTrak program kicks in and a 52-week intensive outpatient program begins in which the patients are engaged and provided with nurses or coaches to gain better control of their underlying condition (which, in turn, leads to fewer secondary events in the patient's life). And, while this field is admittedly heating up in a hurry as more and more health records become digitized, Catasys is one of the companies that is enjoying first to market status. Provided they can continue to deliver the sorts of results they have been delivering thus far, they ought to be able to stay ahead of the competition for the foreseeable future. Bill Mathews, The Cheap Investor The biotechnology sector really got hammered in 2018, taking many quality small-cap biotechs down to historically low prices. One of those stocks is Achillian Pharmaceuticals , a biopharmaceutical company that discovers, develops, and commercializes small molecule drug therapies for immune system disorders in the United States. Its lead drug candidate includes ACH-4471, an inhibitor of factor D that is in Phase II clinical trials for patients with paroxysmal nocturnal hemoglobinuria and C3 glomerulopathy. The company is also developing ACH-5228, a factor D inhibitor that is in Phase I clinical trial; ACH-5548, a factor D inhibitor; and other factor D inhibitors. The company has several products in FDA Trials, collaboration agreements with pharmaceutical companies and a large amount of cash. As of the end of its latest quarter, ACHN has $283 million ($2.05 a share) in cash. The stock has a book value of $2.02 and no debt. The stock has huge institutional ownership, with 149 institutions owning 79% of the float. We think positive FDA news could move the stock price up to the $3-$5 level. Jay Silverman, The Medical Technology Stock Letter Sangamo Therapeutics is the leader in gene editing, and an unappreciated leader in gene therapy as well; with many value drivers coming in 2019, the stock is my top speculative pick for the coming year. A year ago in the first in vivo gene editing study in history, the company began treating adults with MPSII with SB-913. On the Q3:18 quarterly call, the company announced that adolescents aged 12-17 would begin to be enrolled. Less than three weeks later, SGMO has posted an update saying that children as young as 5-year olds are now being enrolled. This is a clear signal that the regulators are in agreement on the company's program, as permanently editing the genes of a child has potential risks involved -- and the agency believes that the initial responses warrant taking such risks. Moreover, if gene editing occurs at an early age, many of the neurological and physical symptoms of MPSII could be stopped well before the condition advances. The clean safety of the firm's ZFN technology stands alone in the revolutionary world of gene editing, especially compared with potential off-target toxicities of other technologies (e.g., CRSPR, etc.). In 2019, SGMO will emerge as the leader in gene editing as positive clinical data will validate both the platform and management's ability to execute. In addition to clinical catalysts, there is strong potential for more collaborations. In our view, Sangamo is undervalued. Chuck Carlson, DRIP Investor Walgreens Boots Alliance is especially attractive for 2019. While international business is a bit on the sluggish side -- hence the reason for the recent selloff -- I like the company's domestic business and the opportunities its drugstore and health-care-related businesses offer. The company has beaten consensus earnings estimates in each of the last seven quarters, and I think the earnings beats will continue in 2019. While the Amazon effect will likely loom over these shares, Walgreens is a formidable competitor in its respective spaces, and I suspect the stock will mount comebacks over time. Investors looking for value in quality blue chips should take advantage of the weakness in Walgreens buy these shares. The stock trades at just 10 times 2019 consensus earnings estimate, so there is plenty of value to be had in the stock. And the dividend yield of 2.5% provides a nice kicker to total-return potential. Ben Reynolds, Sure Dividend Cardinal Health is one of three large pharmaceutical distributors in the United States that together account for more than 90% of the pharmaceutical distribution market share. Cardinal Health is a Dividend Aristocrat -- an S&P 500 stock with 25+ years of rising dividends -- thanks to its 32 consecutive years of dividend increases. The company has struggled in recent years along with the entire pharmaceutical distribution industry. The stock price reached a high of over $90 back in 2015. It traded under $50 in December of 2018, while earnings-per-share are 14% higher in fiscal 2018 versus fiscal 2015. Management has taken advantage of low share prices by engaging in significant share repurchases. We believe the shares appear deeply undervalued. We don't expect Cardinal Health to return to the double-digit earnings-per-share growth rates that it has generated in the past. But we do expect earnings-per-share growth to stabilize after fiscal 2019 and return to growth of around 5% annually driven by a combination of share repurchases and organic growth. This growth combined with the company's high dividend yield of around 4% gives investors expected total returns of approximately 9% annually at Cardinal Health before valuation multiple gains. In the meantime, investors will benefit from Cardinal Health's high dividend and share repurchases.

Biotech and Beyond: 8 Favorite Healthcare Stocks for 2019

From small-cap genetics and biotech firms to large-cap drug distributors and pharmacies, eight experts select their top picks in the space for this year.

Columnist Conversation

This Weekend on Real Money

Friday Morning Fibocall for 10/22/2021

10-Year Note Yields

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.