Wealth From Wellness: 7 Healthcare Stocks to Inoculate Your Portfolio
With concerns about a slowdown in the global economy rising, investors may be better served considering the top healthcare hidden-gem stocks. To be sure, no guarantees exist in the market; otherwise, everyone would pour money into the guaranteed space. However, over the long run, the healthcare sector may be as close to a sure thing as you can get.
Primarily, healthcare stocks inherently carry a defensive posture. Many other sectors face volatility as the major indices print red ink due to fading discretionary spending directly impacting underlying businesses. However, healthcare providers and specialists represent a “permanent” necessity. Basically, when you get sick or injured, you’ve got to do whatever it takes to get better. It’s a cynical argument but it works.
Also, demographic trends may help healthcare stocks. According to the Population Reference Bureau, in 2016, baby boomers hit the ages of between 52 and 70. As this demographic continues to get older, their personal care needs will likely increase. Therefore, whatever red ink may be impacting this sector now may turn black soon enough.
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On that note, below are top healthcare hidden-gem stocks to add to your portfolio.
Hidden-Gem Stocks: Spok (SPOK)
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A healthcare communications specialist, Spok (NASDAQ:SPOK) provides a secure platform to automate clinical workflows for various activities. These include patient alerts, clinician consults, code calls, and test results. It’s not the most well-known enterprise, featuring a market capitalization of about $344 million. Nevertheless, SPOK has more than doubled since the beginning of this year and is one of the top hidden-gem stocks to consider.
So, what’s behind this incredible performance? Generally, Spok tends to either meet or exceed analysts’ expectations for earnings. In its last disclosure for the third quarter, the company posted earnings per share of 22 cents. However, analysts were looking for an EPS of 18 cents. Also, revenue landed at $35.43 million, noticeably above the consensus view of $33.7 million.
Also, in Q2, Spok saw a 90% increase in software bookings, representing a stunning print. While it’s not the most consistently profitable company, it features strong trailing-year margins. Right now, Spok carries a massive forward dividend yield of 7.28% (albeit with a high payout ratio of almost 123%).
As long as Spok maintains momentum, this could be one of the top healthcare hidden-gem stocks available.
Patterson Companies (PDCO)
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Based in Saint Paul, Minnesota, Patterson Companies (NASDAQ:PDCO) is another one of the top hidden-gem stocks that provides products, technologies, services, and business solutions to oral and animal health customers in North America and the U.K. With fears of COVID-19 dropping sharply, more people are returning to the dentists’ offices. Also, with the employment market stabilizing (for now), workers are likely to take advantage of their health plans.
In theory, these dynamics should help boost demand for Patterson. Oh yeah, Americans love their four-legged family members, spending a total of nearly $137 billion on them last year. So, PDCO enjoys a massive total addressable market, making it one of the most attractive healthcare stocks to buy. Sure enough, PDCO posted a modest double-digit return since the beginning of this year.
Financially, Patterson also benefits by being out of the spotlight, thus offering a deal to investors. Presently, shares trade at 12.35x forward earnings, below the sector median of 15.65x. Enticingly, the company also offers a forward yield of 3.31% with a payout ratio of only 38.86%.
Hidden-Gem Stocks: Premier (PINC)
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Headquartered in Charlotte, North Carolina, Premier (NASDAQ:PINC) primarily represents a group purchasing entity. Per its website, Premier was among the first companies to translate the purchasing power of a healthcare alliance into significant cost savings. In addition, the enterprise offers a performance improvement technology and analytics platform along with a consultancy service, among other relevancies.
While Premier offers a pertinent business, Wall Street has a difficult time trusting PNC. Since the start of the year, the company suffered a heavy loss of equity value. What hasn’t helped the cause is earnings performance. While Premier generally meets or exceeds EPS estimates, it has disappointed with revenue in recent quarters. Most notably, in fiscal Q3 2023, Premier posted sales of $322.23 million against a consensus view of $350.53 million.
Still, a patient approach could be key to this troubled but compelling example among healthcare stocks. Specifically, its consistently profitable while trading at a lowly 9.07x forward earnings. Additionally, Premier offers a forward yield of 4.06% and a payout ratio of only 39.61%.
Kenvue (KVUE)
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While I may be talking about Kenvue (NYSE:KVUE) a bit too much, I can’t help myself. From a fundamental point of view, KVUE easily symbolizes one of the top healthcare stocks. Spun off from Johnson & Johnson (NYSE:JNJ), Kevnue focuses on the consumer and personal care product segment. In my opinion, that’s valuable real estate heading into an unknown economic future.
Frankly, during difficult circumstances, it might not be possible for many patients to afford the latest and greatest in pharmaceutical and medical technologies. However, everyone can (reasonably) afford bottles of Tylenol for various aches and pains. And since these nuisances always pop up, Kenvue should theoretically benefit from a predictable revenue stream.
Moreover, with KVUE suffering a steep loss since its first public trading session, it may be ripe for a comeback rally. In the meantime, investors can enjoy the company’s generous forward yield of 3.97%. Yes, its payout ratio is elevated at 62.47% but it’s not anything truly out of the ordinary. In my opinion, it’s worth a shot.
Hidden-Gem Stocks: CVS Health (CVS)
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One of the riskiest ideas among top healthcare stocks, CVS Health (NYSE:CVS) may be worth a look for astute speculators; that is, gamblers who don’t mind taking calculated risks in fundamentally relevant enterprises. To be sure, the pharmacy retailer faces disruption from the usual suspects like Amazon (NASDAQ:AMZN). However, the company is also well aware of the challenges and has been responding in kind.
For me, it’s difficult to see CVS being disrupted. Yeah, certain segments of the business may face some headwinds. But when you combine the holistic advantages of CVS – infrastructure, convenience and brand awareness and trust, among other attributes – the bear case could arguably be overblown. Still, you do want to acknowledge the heavy loss on a 52-week basis.
At the same time, shares appear to have stabilized since mid-May. Also, the market prices CVS at a discount, only 8.22x forward earnings compared to the sector average of 12.88x. Significantly, the company offers a forward yield of 3.49% along with a very sustainable payout ratio of 28.43%.
US Physical Therapy (USPH)
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Hailing from Houston, Texas, US Physical Therapy (NYSE:USPH) bills itself as one of the largest publicly traded pure-play operators of outpatient physical and occupational therapy clinics. While not the most talked-about space among healthcare stocks, it’s crucially important to overall wellness. According to Grand View Research, the U.S. physical therapy services market reached a value of $44.8 billion last year.
What’s more, experts project that by 2030, the sector will print revenue of $58.6 billion. That comes out to a compound annual growth rate (CAGR) of 3.56% from 2023. Now, even though it’s up modestly for the year and is down quite sharply during the trailing half-year period, USPH features a premium multiple. That might not be the greatest news ever.
However, the company is consistently profitable. In turn, it offers a forward yield of 2.01%. At first glance, that might not seem like much. Nevertheless, Wall Street analysts peg USPH a unanimous strong buy. Also, their average price target lands at a lofty $110.
Select Medical (SEM)
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Based in Pennsylvania, Select Medical (NYSE:SEM) is a leader in poste-acute recovery and rehabilitation. Per its website, Select Medical is one of the largest providers of critical illness recovery hospitals, inpatient rehabilitation hospitals, outpatient rehabilitation centers and occupational health clinics in the U.S. Also, the company commands an army of 54,000 healthcare professionals to help restore patients’ quality of life.
That said, the Street is looking for something to kick SEM into a higher gear. Since the beginning of the year, shares are down modestly on a year-to-date and trailing-52-week basis. Still, it’s possible that the market is being too harsh on Select. In the three quarters this year, the company handily analysts’ EPS estimates. And that applies to the revenue front as well, although with less bravado.
Another compelling factor to keep in mind is that unlike US Physical Therapy above, Select is undervalued against traditional metrics. For example, SEM trades at only 9.55x forward earnings, below the sector median of 23.78x.
Finally, analysts also rate SEM a unanimous strong buy with a $32.67 average price target.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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