The healthcare sector received much investor attention amid the COVID-19 pandemic, which highlighted the need for a significant improvement in healthcare provision. Consequently, U.S. healthcare companies and healthcare providers worldwide are now ramping up their research and development to provide better healthcare facilities.
iShares Global Healthcare ETF (IXJ), which offers exposure to the global health care sector, has gained 17.6% over the past year. This is reflective of decent investor interest in this space. More interestingly, this industry is expected to witness steady demand in the future. According to National Health Expenditure (NHE) data, national health spending is expected to hit $6.2 trillion by 2028.
Backed by this expectation, we think it is wise to bet on Novartis AG (NVS), Merck and Company, Inc. (MRK), and AstraZeneca PLC (AZN). Wall Street analysts believe these stocks could soar more than 20% in the near term.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS develops, manufactures, and markets branded and generic prescription drugs, active pharmaceutical ingredients (APIs), biosimilars and ophthalmic products. It operates mainly through two segments — Innovative Medicines and Sandoz.
NVS’ revenue for the fourth quarter, ended December 31, 2020, increased 2.9% year-over-year to $12.80 billion. Its operating income increased 45% year-over-year to $2.64 billion. The company’s net income came in at $2.10 billion, which indicates an 85.9% year-over-year increase. Also, its EPS increased 84% year-over-year to $0.92.
Analysts expect NVS’s EPS and revenue to increase 15.4% and 6.2%, respectively, year-over-year, for the quarter ending June 30, 2021. It also surpassed consensus EPS estimates in three of the trailing four quarters.
On March 30, the company obtained exclusive worldwide rights to develop and commercialize therapeutic applications for a library of Fibroblast Activation Protein (FAP) targeting agents, including FAPI-46 and FAPI-74. This will give the company to play a dominant role in this market.
The stock closed yesterday’s trading session at $88.38. Wall Street analysts expect the stock to hit $105.79 in the near term, which indicates a potential 19.7% upside.
NVS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Stability, and a B grade for Value, Growth, and Quality. We’ve graded it for Momentum and Sentiment as well. Click here to access all NVS’ ratings.
NVS is ranked #5 of 233 stocks in the Medical-Pharmaceuticals industry.
Merck and Company, Inc. (MRK)
Healthcare company MRK offers therapeutic and preventive agents to treat a range of diseases, including cancer, infectious diseases including HIV and Ebola, and emerging animal diseases. It offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. MRK operates through four segments—Pharmaceutical, Animal Health, Healthcare Services and Alliances.
MRK’s net sales of $12.51 billion for the fiscal 2020 fourth quarter ended December 31, 2020 represents a 5.4% year-over year rise. Its non-GAAP net income for the quarter came in at $3.40 billion, up 12.5% year-over-year. Also, the company’s non-GAAP EPS increased 13.8% year-over-year to $1.32.
MRK’s EPS and revenue are expected to increase 16.1% and 16.7%, respectively, year-over-year, for the quarter ending June 30, 2021. MRK also surpassed the consensus EPS estimates in three of the trailing four quarters.
On April 1, MRK announced successful completion of its cash tender offer, through a subsidiary, for all the outstanding shares of common stock of Pandion Therapeutics, Inc. MRK’s acquisition of Pandion Therapeutics is expected to be profitable given that allows MRK to now operate in the therapeutics market with an additional customer base that should allow the company to grow in scale and in profit.
The stock closed yesterday’s trading session at $77.66 and analysts expect it to hit $95.81 in the near term, which indicates a potential upside of 23.4%.
MRK’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Quality, Stability, and Value. In addition to the POWR Rating grades I’ve just highlighted, one can see MRK ratings for Sentiment, Momentum, and Growth here.
MRK is ranked #15 in the same Industry.
AstraZeneca PLC (AZN)
Based in Cambridge, the United Kingdom, AZN is engaged in the research, development, and manufacture of pharmaceutical products. It is mainly focused on three main therapy areas—Oncology, Cardiovascular, Renal & Metabolic (CVRM) and Respiratory. Even though its COVID-19 vaccine AZD1222 (or Vaxzevria) has received some criticism in the recent days, if the FDA issues an emergency use authorization (EUA), it could bode well for the company.
The company’s $7.41 billion in net sales for fiscal year 2020 fourth quarter (ended December 31, 2020) represents an 11.20% year-over year rise. Its operating income came in at $2.30 billion, which represents a 2.9% year-over-year increase. AZN’s net income also increased 223.3% year-over-year to $1.01 billion. And its EPS was $0.78, up 225% year-over-year.
For the quarter ended March 31, 2021, the company’s EPS and revenue are expected to increase 41.5% and 12.4%,respectively, year-over-year. AZN also surpassed consensus EPS estimates in three of the trailing four quarters.
AZN cleared a U.S. Federal Trade Commission review on April 19, 2021 for the proposed acquisition of Alexion Pharmaceuticals. After the acquisition, AZN plans to create a dedicated unit, The AstraZeneca Rare Disease Unit. The unit is expected to expand AZN’s global footprint and provide it with a broad coverage across primary, specialty and highly specialized care.
The stock has rallied 4.9% over the past month to close yesterday’s trading session at $51.63. Analysts expect it to hit $62.21 in the near term, which indicates a potential upside of 20.5%.
It’s no surprise that AZN has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth, Value, Quality, and Stability. Click here to see the additional POWR Ratings for AZN (Sentiment, and Momentum).
AZN is ranked #11 in the Medical-Pharmaceuticals industry.
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NVS shares were trading at $87.85 per share on Tuesday morning, down $0.53 (-0.60%). Year-to-date, NVS has declined -4.71%, versus a 10.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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