Forget The S&P 500, Buy These 3 High Growth Healthcare Stocks Instead

The last month has not been a stellar one for the broader stock market. We’re a long way from the lows of 2016, but there does not seem to be any viable catalyst that can help in pushing markets higher.

In fact, Goldman Sachs (NYSE:GS) cites slowing jobs growth, weak manufacturing data, and downside valuation risk as reasons for why the S&P 500 is expected to end the year at 2100. The value of the index is already higher than these levels, so the broader performance of your portfolio may see its returns stagnate from here.

To capture returns without running into too much valuation risk, you will want to look for companies that trade at lower earnings multiples. If you seek to increase your level of profitability at the same time, you should increase your exposure to sectors that are positioned to impress. We’ve selected three high growth candidates within the healthcare space, and their current valuation levels make them ripe for the picking right now.

Healthways Inc- (NASDAQ:HWAY)

Healthways Inc. provides well-being improvement solutions. It uses the science of behavior change to measure positive changes in well-being for its customers, which include employers, hospitals, physicians, government entities, and more. The company has various programs and solutions that are designed to impact lifestyle choices and activity levels for communities as well as individuals. Healthways is a Zacks Rank #2 (Buy) and it has a market cap of about $890 million.

Right off the bat, HWAY stock looks cheap since it trades at a forward PE of just 11.5. Healthways also has a PEG of 0.86, and this makes it an especially intriguing bargain. When a company has a PEG below one, it may be undervalued relative to its long term growth expectations.

Our consensus estimates EPS of $2.11 for fiscal 2016, and this represents EPS growth of 1,216% compared to last year. Additionally, five analysts have revised their earnings estimates over the last two months, and all of those estimates were revised in the upwards direction.

Price and EPS Surprise

Price and EPS Surprise | Quote

Centene Corporation- (NYSE:CNC)

Centene is a major health insurance company which provides managed care programs and related services to individuals receiving benefits under Medicaid and Medicare. CNC stock is a Zacks Rank #3 (Hold). At a market cap of $11.4 billion, it is the largest company out of the three we are recommending in this article.

Centene trades at a forward PE of 15.20 and it also has a PEG of 0.95. CNC receives a “B” for Value in our Style Scores and it also has a price-to-sales (P/S) ratio of just 0.29. The average P/S ratio in the industry is 0.40, so it is nice to see that Centene outperforms most of its peers when looking at this valuation metric.

CNC has some positive growth traits as well, and 2016 is expected to yield great results for the company. This year, EPS and sales are projected to increase by 45% and 74.9% respectively. The corporation is coming off of a great Q2 earnings report, where it beat our EPS consensus estimate by 19.44%. The insurer has a tendency to surpass our EPS estimate, and it has met or beaten our consensus in each of the last four quarters.

Price, Consensus and EPS Surprise

Price, Consensus and EPS Surprise | Quote

Horizon Pharmaceuticals Plc- (NASDAQ:HZNP)

Horizon Pharma is a biotech company focusing on developing and commercializing drugs that treat rare diseases. In addition to treating orphan diseases, its portfolio consists of drugs that treat arthritis and inflammation. Today, Horizon announced that it will acquire Raptor Pharmaceutical Corp. (NASDAQ:RPTP) for approximately $800 million. The acquisition is expected to help bolster HZNP’s rare disease business. Horizon is a Zacks Rank #3 (Hold) and its stock shot up by 9.4% today.

In spite of the recent price surge, HZNP still looks like a bargain across fundamental valuation metrics. It trades at a forward PE of 7.90 and its PEG is just 0.48. If the growth that the company expects from the acquisition of Raptor Pharmaceutical Corp is factored in, then there’s a good chance that the PEG is even lower than it currently is.

Biopharmaceutical companies often run up a lot of debt because of their high research costs. The number of years it takes before being able to develop FDA approved drugs can also add wear on a company’s sources of capital. Thankfully, Horizon finally realized positive net income numbers last year, where sales grew by a massive 154.9%. The company also expects growth to the top and bottom line this year, with EPS and revenue forecasted to increase by 34% and 36% respectively.

Revenue (Quarterly)

Revenue (Quarterly) | Quote

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