July 11, 2019
Last January, MoneyShow.com asked the leading newsletter advisors to select their favorite stocks for 2019. Healthcare was a popular sector in that survey, with several big first-half winners. Here’s a check-up on six healthcare ideas that remain favorites for the second-half gains in 2019. (View article on TheStreet.com.)
Tyler Laundon,Â
Repligen (RGEN) was my favorite idea for 2019. The stock has since risen around 63%. 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 also coming on strong in both Chromatography and Filtration, which grew by 25% and 85%, respectively, in 2018. These solutions help customers overcome capacity, cost, quality and time pressures. It has a market cap of $4.1 billion.
Repligen 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 organizations, including GE Healthcare and MilliporeSigma. Repligen also does business with life science companies, diagnostic companies and laboratory researchers. This roughly 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 32% for the past three years and EPS at an average pace of 23%. In 2018, revenue jumped 37% to $194 million while adjusted EPS improved 4% to $0.73. In the first quarter of 2019 revenue was up 35% to $60.6 million while EPS was up 65% to $0.28.
Management updated 2019 revenue guidance above consensus to a range of $235 million to $241 million (implying 22% to 25% growth) and adjusted EPS above consensus to a range of $0.84 to $0.90. Repligen ended first-quarter 2019 with $196 million in cash and equivalents, implying plenty of room for more merger & acquisition activity.
Nate Pile, Nate’s Notes
Catasys (CATS)  was selected as my favorite investment idea for 2019. The stock has since risen some 105%. Catasys is a small (market cap is right around $300 million), up-and-coming company that has developed a proprietary data analysis platform to assist individuals in healthcare plans that suffer from chronic conditions.
Once individuals in a plan have been identified as good, Catasys’ OnTrak program kicks in and a 52-week intensive outpatient program begins. Patients are then engaged and provided with nurses or coaches — in person and via video conferencing — and these coaches proactively work with their patients to gain better control of their underlying conditions (which, in turn, often leads to fewer “secondary” events in the patients’ lives).
Catasys continued to show strong growth in the first half of 2019, thanks to the success it has been achieving with early adopters of their program. Now, many of these health plans are looking to expand their utilization of Catasys’ programs within their own networks, and, as word continues to spread in the industry, new customers are starting to line up as well.
Though the company will need to be careful to not grow so quickly that the quality of its products begin to suffer, as long as management remains disciplined in its approach to scaling-up the business to handle larger and larger patient pools, we believe all signs are currently pointing towards the company being on the verge of entering a period of “hyper-growth.”
With so few analysts currently following the story (and an extremely thin float, so expect to see some volatility if you get involved with the stock!), we believe there is still plenty of upside left from current prices, especially for investors who are willing to follow our lead by taking a multi-year approach to building a position in the stock. Catasys is a buy under $22 and a particularly strong buy below $14.
Bill Mathews, The Cheap Investor
I selected Achillion Pharmaceuticals (ACHN) as my favorite idea for 2019. The biotechnology stock rose 69% in the first half of the year. This small biotech stock is a clinical-stage biopharmaceutical company focused on advancing its oral small molecule complement inhibitors into late-stage development and commercialization.
Research has shown that an overactive complement system plays a critical role in multiple disease conditions including the therapeutic areas of nephrology, hematology, ophthalmology and neurology.
The company is initially focusing its drug development activities on complement-mediated diseases where there are no approved therapies or where existing therapies are inadequate for patients.
I continue to like Achillion because they have several products in FDA Trials. Their pipeline includes four products in late stage II and two products in stage I. They have a huge amount of cash, $254 million.
Currently, 133 institutions own 80% of the float and the top nine institutions purchased 13.5 million more shares than they sold for the quarter ended March 30. Even though I think the stock has the potential of going higher, investors should protect their profits with stop loses.
John McCamant, The Medical Technology Stock Letter
The Medicines Co. (MDCO) was a top speculative idea for 2019. In the first half of 2019, the stock rose 90%. After the positive ORION-3 update at the National Lipid Association (NLA) meeting on 5/18, the firm presented analyses of two additional clinical studies of inclisiran at the 87th European Atherosclerosis Society (EAS) Congress in Maastricht, Netherlands.
A combined analysis demonstrated that patients across a range of renal function levels given inclisiran achieved consistent reductions in low-density LDL-C with no dose adjustment necessary for patients with renal impairment.
As we head into the Phase III readouts due in the third quarter, based upon three years of exposure, >3000 patient lives and six independent looks on safety, expectations are rising that the data will be positive.
Despite being a strong performing stock, the shares, in our view, remain grossly undervalued. The stock reached the mid-$50s back in 2017. With the stock sitting in the mid-$30s after long-term safety and efficacy follow-ups.
While the biotech stock market has been focused on and placing tremendous value on new treatments for oncology and rare diseases, cardiovascular diseases remains, by far, the single leading cause of death in developing nations. The firm also has an activist board of directors with unparalleled success in delivering biotech company sales at huge premiums. In our view, The Medicines Company is next.
Jim Woods, Bullseye Stock Trader
I chose Abbott Laboratories (ABT) as my top conservative investment idea for 2019 and the stock rose 16% in the first half of the year. The diversified medical device maker has gotten off to a solid start in 2019, despite the political headwinds swirling around the healthcare sector.
Abbott — as well as other strong healthcare stocks — are near 52-week highs. As I always stress, it’s an absolute necessity to own stocks with strong earnings growth. Like cream, great companies with strong earnings and strong products pipelines tend to quickly rise to the top.
That description continues to apply to Abbott, as its earnings growth track record is stellar. That growth is expected to continue in its next earnings release, which is slated for July 17.
Analysts are expecting the company to come in with earnings per share of 80 cents, or nearly 10% year-over-year growth in EPS. The company also is slated to deliver strong revenue, with net sales of $7.99 billion, or a nearly 3% increase from the prior year.
Abbott Laboratories is a proven, steady performer with a solid dividend and strong share price appreciation potential. That’s why I like it for the remainder of 2019, and likely well beyond.
Nancy Zambell, Wall Street’s Best Investments
As a favorite conservative investment idea for 2019, I picked Smith & Nephew plc (SNN) ; the healthcare products firm rose 16.5% in the first half of the year. The low beta for Smith & Nephew was the first characteristic that brought this stock to my attention.
Beta compares the volatility, or systemic risk, of a stock to the volatility of the market. The stock’s beta today is just 0.14, which means its volatility, in relation to the broader market, is limited. But because one ratio does not tell us everything we need to know to evaluate a stock, so we need to look further.
The company makes medical devices — primarily for hips and knees — and sells them in more than 100 countries around the world. Additionally, the company offers devices used in the stabilization of severe fractures and advanced wound care products.
Smith & Nephew is growing organically and by acquisition. Its latest acquisition offers digital surgery and robotics joint reconstruction. This technology is being used in more than 40,000 orthopedic cases each year at more than 500 accounts worldwide.
At the end of the first quarter, 13 hedge funds tracked by Insider Monkey were long on Smith & Nephew, up 18% from the previous quarter. The top holders are Arrowstreet Capital, which owns $161.3 million of the stock and Fisher Asset Management, which has a $49.8 million investment.
The shares attracted several new hedge funds, including PEAK6 Capital Management, Laurion Capital Management, and BlueCrest Capital Mgmt. Although the shares have climbed nicely, I believe there is more room to grow. So, if you haven’t bought in yet, it is a good time to do so.