4 Great Stocks to Ride the IBB Rebound
Impressive gains from a medical equipment company following particularly promising clinical trials helped the healthcare sector gain more than 1% on Monday. This was the single bright spot on a day when stocks moved lower. Still in the red year to date, the sector has made an impressive comeback over the last month, gaining nearly 3%.
A notable subsector gaining from this uptrend is biotechnology. After declining over the last three months, the iShares Nasdaq Biotechnology (IBB) is in the black once again. This makes it imperative to pick shares from this portfolio at this point in time.
Factors Supporting Recovery
Monday’s gains for the sector came on the back of encouraging clinical trial results for Edwards Lifesciences Corp. EW which gained 17%. According to the company, data from the trial reveals that a procedure which uses its SAPIEN 3 valve shows better results than open heart procedures for certain patients.
Positive results from clinical trials are one of the key triggers that lift the sector’s stocks. They are difficult to predict, but come as welcome surprises for investors. However, there are other factors that are more predictable and likely to help the sector’s stocks gain over the rest of the year.
First, earnings are likely to improve from Q1 numbers which are usually weaker due to the seasonal influence on inventories and a small number of guidance raises. Also, the wariness over the impact of elections is likely to abate as the campaign progresses. More activity on the merger and acquisition front will also be beneficial to the sector.
Possible Downsides
On Monday, the U.S. Treasury Department announced new rules designed to contain inversion-related deals. The potential merger between Pfizer Inc. PFE and Allergan plc AGN is likely to fall through as a result of this development. Additionally, measures may be taken to prevent financial transactions which lower profits of multinationals that are taxable in the U.S.
More worrying are the calls for reducing the prices of several drugs. Hillary Clinton’s comments on the prohibitive costs of certain medications drew much attention last year, weighing down on the sector’s stocks. However, legislative action is likely to take a substantial amount of time.
Additionally, there are several factors contributing to pricing power which is unlikely to diminish any time soon. For instance, loyalty is built up for a medication when a consumer experiences beneficial effects from a drug over a long period.
Our Choices
The IBB has rebounded over the last month, moving up 0.3%. Several factors are likely to boost the sector’s stocks going forward too. This is why it makes good sense to add stocks from this index to your portfolio.
However, it is important to focus on company fundamentals and its inherent strengths. At times, it may be difficult to pick winning stocks.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
PRA Health Sciences, Inc. PRAH operates as a global contract research organization which offers outsourced clinical development services to the biotech and pharma sectors.
PRA Health Sciences has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 19.7% for the current year. Its earnings estimate for the current year has improved by 10.4% over the last 30 days.
Gilead Sciences Inc. GILD focuses on the discovery, development and commercialization of drugs for several indications.
Gilead Sciences has a Zacks Rank #1 and a VGM Score of A. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 7.59, which is lower than the industry average of 23.65. Its earnings estimate for the current year has improved by 3.9% over the last 30 days.
AMAG Pharmaceuticals, Inc. AMAG is a specialty pharmaceutical company which focuses on the development and commercialization of drugs related to maternal health, anemia and cancer supportive care.
AMAG Pharmaceuticals has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. It has a P/E (F1) of 5.31, which is lower than the industry average of 23.65. Its earnings estimate for the current year has improved by 82.4% over the last 30 days.
Horizon Pharma plc HZNP is a biopharmaceutical focused on identifying, developing, acquiring and commercializing products to address unmet therapeutic needs in arthritis, pain, inflammatory and orphan diseases.
Horizon Pharma has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 53.8% for the current year. It has a P/E (F1) of 6.61, which is lower than the industry average of 23.65. Its earnings estimate for the current year has improved by 12.5% over the last 30 days.
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PFIZER INC (PFE): Free Stock Analysis Report
ALLERGAN PLC (AGN): Free Stock Analysis Report
AMAG PHARMA INC (AMAG): Free Stock Analysis Report
EDWARDS LIFESCI (EW): Free Stock Analysis Report
GILEAD SCIENCES (GILD): Free Stock Analysis Report
PRA HEALTH SCI (PRAH): Free Stock Analysis Report
HORIZON PHARMA (HZNP): Free Stock Analysis Report
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