The Sector Is Fairly Valued, but These Stocks Are Not
A handful of health-care names are selling at premiums now, but buying opportunities are surfacing, as well.
The Sector Is Fairly Valued, but These Stocks Are Not
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Damien Conover: Today we're talking about health care, and when we think about health care, there are a lot of different industries within health care. But when we aggregate our fair value estimates across the different industries, everything in health care is looking pretty fairly valued. Now that being said, within each one of the industries, we see some stocks that are definitely undervalued and certain stocks that are overvalued.
Taking a look at the Big Pharma space, this is a space where the dividends we think are very secure, so if you are looking for income it’s a great place to be, but from a valuation perspective a couple names we're concerned about are AstraZeneca and Bayer. And then when we flip to the other side, names we think are undervalued, really Sanofi comes to the top of the list there.
Shifting gears then into biotechnology, it's the same sort of thing here. In the undervalued camp, we really like Gilead right now. It has had a nice pullback as most of the biotechs have pulled back recently, and we think that offers investors a good upside, especially on the basis of their new hepatitis C product. Biogen Idec to us looks like it's gotten overvalued, and it's a name that we're concerned about. While it has great new products, we think that's more than baked into the valuation right now.
On the device side, it's the same sort of story here. A name that we really like is Cooper Companies. The firm is introducing a new product into the contact lens manufacturing space; there's a lot of upside there. Conversely a name that we think is overvalued as Boston Scientific, kind of a laggard in bringing new products into the market.
Shifting gears into the services space, a lot of our best ideas are here in the pharmacy benefit management space. This is a group that does the negotiations for drug prices. Express Scripts and Catamaran looked very well-positioned for upside on the valuation. Conversely, hospitals right now look like they have gotten a little bit ahead of themselves, and the valuations look a little rich to us.