This year, profits have been really hard to pocket. Indeed, progress in 2015 is much like an EKG chart. You have your ups and downs, but ultimately you end up where you started. On January 2, the index was at 2058. Today the index is at 2057.5. Year to date, the S&P 500 has basically gone nowhere. Hopefully this isn’t the case for your portfolio.
If, however, your investments are caught up in the negativity that Greece, China, and growth concerns have brought into the market, you need to focus on sectors which have a positive outlook. One such sector is US healthcare. Year to date, the iShares US Healthcare (NYSE:IYH) has picked up a return of 9.5%. As mentioned earlier, the S&P has gone nowhere. Don’t stay stagnant, jump on the ship with a rising tide.
Did I mention that earnings season is here? At Zacks, we have a system that tells us who will beat earnings estimates with more than 70% accuracy. A part of this system is called Earnings Expected Surprise Prediction, or ESP for short. The other part of this system includes stocks from a Zacks Rank #1 (Strong Buy), to a Zacks Rank #3 (Hold). When a stock has a positive ESP and a favorable Zacks Rank, it is much more likely to beat the earnings consensus.
Below, we have listed three health care stocks set for a great earnings season and perhaps a great year. They are from the pharmaceutical and health insurance industry, the latter of which will benefit greatly from the Supreme Court’s decision to grant eligibility to people who have enrolled into an Obamacare subsidy without enrolling into their state run insurance. We have selected these stocks based on their promising growth potential, fair valuation, and favorable earnings prospects.
Anthem Inc (NYSE:ANTM)
Anthem is a health insurance company offering an array of care plans for large and small employers, individuals, and those on Medicaid and Medicare. Anthem is a Zacks Rank #1 (Strong Buy). It doles out a 1.57% dividend to shareholders. ANTM has a positive ESP of 0.74%, making it a likely candidate to surpass our earnings estimate for the quarter.
Anthem has a score of “A” for Growth in the Style Scores. Its EPS is projected to increase by 14.03% this year. Its net profit margin is 3.64%, which may not seem significant at first glance. However, that margin more than doubles the industry’s average profit margin of 1.62%.
The valuations are pretty favorable for the company. It trades at a forward PE of 15.89, while the industry as a whole currently has a forward PE of 21.94. Another encouraging fact to go along with Anthem’s PE is its PEG, which is currently 1.58. ANTM has a price to book of 1.75.
In the last 60 days, there have been no negative estimate revisions by analysts. In that time span, there have actually been 5 analysts raising their earnings projections upwards for the quarter. In the last 90 days, our EPS consensus for the quarter has gone from $2.64 to $2.71, a notable increase. Anthem has beaten our earnings consensus estimate in each of the last four quarters, and it reports its earnings on 7/29/15.
Centene Corporation (NYSE:CNC)
Centene is a health insurer specially catering to the needs of those under Medicaid. They also offer health solutions through their specialty services companies. CNC is a Zacks Rank #1 (Strong Buy).
Centene gets a “B” for Growth. It has an impressive sales to assets ratio of 3.22. CNC’s EPS is projected to increase by 18.58%, outperforming the industry’s meager 10.77%. Sales are projected to increase year over year by 33.9% in 2015. Its trailing twelve month ROE is 17.94%. Although the stock’s forward PE isn’t the greatest, the price to sales of 0.46 affirms some value in the stock. So does the PEG of 1.46.
In the last 60 days, 21 analysts have changed their earnings estimates for the company. In fact, they all raised their estimates for this quarter. 30 days ago, our consensus had us estimating earning of $0.62 per share. Now, however, our consensus estimates that we’ll see the EPS at $0.69. CNC will likely beat our consensus, though, since it has a positive ESP of 1.45% complementing its Strong Buy rank. Centene reports its earnings on 7/28/15.
AMAG Pharmaceuticals Inc (NASDAQ:AMAG)
AMAG Pharmaceuticals is a biopharmaceutical corporation that develops and markets therapeutic iron compounds to treat illnesses like anemia. These compounds also aid in the diagnosing of other diseases. AMAG is a Zacks Rank #1.
The stock has a massive EPS growth estimate, projecting a 2,229.41% increase since last year. The trailing twelve month profit margin is also massive at 80.71%. Sales are expected to be 217.7% higher than last year. People who have invested in the stock since 2014 saw share prices climb over 190% up until now. With the massive growth expected, it will not be surprising to see the stock have an impressive 2015.
AMAG trades at a forward PE of 19.42, which isn’t impressive at first glance. Keep in mind, though, that there are high expectations for pharmaceutical stocks as a whole. Evidence of this is the fact that the industry is currently trading at a forward price to earnings multiple of 29.73. This may even make AMAG look cheap in relation to other pharmaceutical stocks. Another stat to back up this suggestion is its price to book of 3.2. The industry as a whole trades at a P/B of 5.5, so AMAG wins it out here as far as valuations go.
30 days ago, our EPS consensus estimated earnings of $0.67 per share for this quarter. Now, our consensus is higher, standing at earnings of $0.75 per share. AMAG has beaten our earnings estimates in two of the last three quarters. It’s worth mentioning that AMAG has beaten our earnings estimates by an average of 31.69% per quartet in that time frame. AMAG has an ESP of 25.33%, so you can be assured that this stock has a great chance of beating our current EPS consensus of $0.75. The biopharmaceutical company reports its earnings on 8/4/15.
Bottom line
Healthcare has been a great place to invest in for the last five years. With an aging economy and an increasing demand for healthcare, the horizon looks great for the sector as a whole. Therefore, you should keep an eye out for great healthcare stocks with rising estimates, high growth projections, and fair valuations.
I hope your portfolio isn’t lifeless this year. If, however, your portfolio is in need of resuscitation, we’re here to bring it back to life. At Zacks, our stock rating system has been outperforming the S&P 500 for decades, with average annual returns yielding 26%. Don’t miss out!