Healthcare is something that people need no matter what's happening in the economy, so the sector is full of great stocks for investors seeking steadily growing income streams. That said, Abiomed, Inc. (NASDAQ: ABMD), Biogen Inc. (NASDAQ: BIIB), and Canopy Growth Corporation (NYSE: CGC) are three popular healthcare stocks that would make horrible additions to a retirement portfolio.
This doesn't mean these are bad stocks for everyone, but investors of all stripes should understand why they're particularly awful for retirees.
Abiomed, Inc.: Demanding big growth from tiny pumps
This stock has delivered a stunning 1,490% gain over the past five years, but you don't want it in your retirement portfolio. That's because any slowdown to the company's astronomical growth rate could leave you sitting on heavy losses.
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Abiomed sells tiny pumps that allow surgeons to perform lifesaving procedures on patients who probably would be too weak for the surgery otherwise. By dominating the niche they created, these pumps helped Abiomed's top line soar 280% over the past five years, but investors could find themselves sitting on a loss if the company can't maintain this hair-raising pace in the years ahead.
Abiomed is earning heaps of money for shareholders who bought the stock years ago. At recent prices, though, you'll pay around 101 times the $3.58 per share in earnings that the company reported during the past year, while the average stock in the S&P 500 trades at 23.8 times trailing earnings.
Abiomed can support a sky-high valuation now because management's been able to report year-to-year sales growth of 29% or better during every quarter since the beginning of 2015. Investors are expecting a long continuation of this growth rate as the company expands beyond its domestic market.
Abiomed might have what it takes to produce outstanding growth for years on end, but any threat to the company's niche market in the meantime will lead to losses you probably can't afford if you're no longer earning a salary.
Canopy Growth Corporation: Even this big marijuana stock is too risky
Size is usually associated with safety, but that doesn't make any of the big marijuana producers a sound investment for retirees yet. Once you're no longer earning a salary, it's imperative that the stocks you own earn money for you. Canopy Growth Corporation sold around 2,695 kilograms of medical marijuana during the three months ended June, but it didn't produce any profits for its shareholders.
Like its peers, Canopy Growth is bleeding money while it prepares for a surge of recreational cannabis users in Canada. Investors have ignored losses at the moment and inflated this company's market value to $7.5 billion in hopes it will finally be able to turn a profit once achieving enough volume.
I'm going to go out on a limb here and suggest that once you start selling an annualized 10 metric tons of marijuana, your operations ought to show signs they're approaching profitability. Canopy Growth isn't even close. During its fiscal first quarter, it reported an $11.1 million gross profit before non-cash expenses, but sales, marketing, general, and administratve expenses rang up to a combined $36.9 million during the three-month period.
Canopy Growth expanded to prepare for a surge in recreational cannabis sales that will begin in Canada on Oct. 17, and that's responsible for a recent surge in operating costs. But Canopy Growth's gross profit during the most recent quarter wasn't even enough to cover the same line items during the previous-year period.
Image source: Getty Images.
Biogen Inc.: As uncertain as it gets
Unlike Canopy Growth, Biogen has patent protections that allow it to sell drugs at a profit. This stock has helped turn everyday investors into millionaires in the past, but its future is far too uncertain for retirees to even think about buying it.
Sales of Biogen's own multiple sclerosis therapies, which comprise 80% of total sales, are sliding slowly. A new rare disease drug called Spinraza is offsetting the losses at the moment, but the treatment could have some tough competition soon.
Biogen's invested heavily in new drug candidates that show an ability to reduce the buildup of plaques associated with Alzheimer's disease. Unfortunately, other high-profile candidates that have been proven to prevent these plaques from forming haven't been able to stop the disease from robbing people of their cognitive abilities.
Biogen's running a huge pivotal study with aducanumab, an experimental Alzheimer's disease therapy that produced mixed results during a small early-stage trial. If the company is successful in the larger setting, it could give your retirement portfolio a jump-start, but the odds of this candidate failing the same way its predecessors have are just too strong to ignore.
Image source: Getty Images.
Remember what to look for
There isn't a perfect system for picking retirement stocks, but these three display features to run away from every time. Abiomed's business is terrific, but retirees simply can't bet on a company growing at a breakneck speed for years on end.
Dividends aren't entirely necessary, but a proven ability to earn a steady profit is. Retirees can't afford to wait around for a business to become profitable or risk the losses if it doesn't occur. Biogen generates a profit, but the uncertainty surrounding its product sales and Alzheimer's pipeline are complete deal breakers for anyone who needs to preserve their nest egg.
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