The health care sector put up a good show in the year 2018, which is drawing to a close. Constant innovation of products and tools, research in biotechnology field along with increase in aged population across the United States have paved the way for this industry to flourish.
The S&P 500 Health Care Index has rallied 11.79% in a year's time compared with the 1.46% rise in the S&P 500 index.
Most leading healthcare companies in the United States enjoy a consistent cash flow and impressive profit margins plus constantly put in efforts to expand respective capabilities. Per Standard & Poor’s data, despite restricting factors, this sector has been featured as the second-best performing one among the top 10 major sectors for half of the last decade through Sep 30, 2017. Moreover, the healthcare sector has been among the top three performing sectors for seven of the past 10 years and this should help instill investor confidence in it.
Dominant Themes for 2019
Digital Transformation: Heathcare companies will continue to seek greater technological investment and innovation with an aim to reduce inefficiencies and wastages that bump up overall medical cost and lower the quality of care provided. The healthcare industry has been light on embracing technology and given the obvious benefits of the same, the industry players are increasingly opting for the usage of big data, artificial intelligence, analytics, informatics, machine learning, virtual assistant etc.
Growth of Remote Patient Monitoring Programs: The U.S. healthcare system inefficiencies, extreme variations across access, cost and quality of care coupled with limited supply of physicians have contributed to remote monitoring of patient care or telehealth care. The telehealth industry strives to solve access, cost and quality of care challenges by means of virtual care delivery via various modalities such as video, web, mobile and telephone.
Market participants believe, the U.S. telehealth market will grow 14.8% to $2.8 billion from 2016 to 2025. Recently, Centers for Medicare and Medicaid Services (CMS) released its proposed rules regarding the ability of Medicare Advantage plans to include telehealth as part of the bids for the 2020 plan year. This will make telehealth services accessible to 21 million MA enrollees, thus benefiting players in the telehealth industry. Therefore, positive signs predict higher growth for the telehealth industry in 2019.
Increased Mergers and Acquisitions: The healthcare sector has always remained on top when it comes to pervasive M&A activity. Players across the sector from health insurers to drug companies, hospitals and others regularly resort to purchasing complementary businesses for rapid expansion. The recent big ticker mergers of Aetna and CVS Health, Bayer’s $63-billion buyout of Monsanto and several others will deliver a consolidating impact on the healthcare space next year.
Favorable Effects of Tax Cuts: The new tax reforms left more cash in the hands of healthcare companies, which should produce substantial results in 2019. Per a PwC report, in 2019, healthcare organizations may find it necessary to restructure businesses for accommodating new rules on unrelated business income, assess the impact of taxes and refunds on Medical Loss ratios, determine to the manner of investing cash outside the United States and streamline the supply chains in line with a new territorial tax system and the emerging trade uncertainties.
Impact of Tariffs: The healthcare sector’s medical device industry is exposed to the ongoing U.S.-China trade dispute. From Jan 1, 2019, Chinese import of medical devices (which is approximately $836 million and include medical instruments, devices and medical imaging components) will impose a tariff of 25%. These import duties are going to increase the device cost for the manufacturers. Consequently, this will induce higher costs of medical goods for hospitals.
While these will rule the roost as principal themes for next year, other ongoing factors such as demographic changes, increased consumer say in making the choice of healthcare services, move from volume-based to value-based care will continue to reshape the healthcare sector.
Stocks Expected to Sustain the Winning Streak
Now let us take a look at the stocks that are likely to continue with the bull run in 2019.
Here we pick five top healthcare bets that can show great momentum with favorable price movement. These stocks have performed well over the last few quarters and are likely to carry on with their purple patch. The stocks carry an impressive VGM Score of A or B and a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
Our research shows that stocks with a VGM Score of A or B when combined with a solid Zacks Rank of 1 or 2, offer the best investment opportunities. The chosen gems have also outperformed the S&P 500 stocks year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Operating through three segments, namely Commercial & Specialty Business, Government Business and Other, Anthem, Inc (ANTM - Free Report) works as a health benefits company in the United States.
For 2019, the Zacks Consensus Estimate for earnings stands at $17.59, translating into a 12.36% year-over-year rise. The company flaunts a VGM Score of A and has a Zacks Rank of 2. Shares of this company have rallied 22.65% in a year’s time, outperforming its industry’s increase of 20.42%.
The Ensign Group, Inc. (ENSG - Free Report) offers health care services in the post-acute care continuum and other ancillary businesses in the United States. It operates via three segments, which are Transitional and Skilled Services, Assisted and Independent Living Services plus Home Health and Hospice Services. The stock is a Zacks #2 Ranked player and has a VGM Score of A. For 2019, the consensus mark for earnings is pegged at $2.08, reflecting a 12.16% year-over-year improvement.
Shares of the stock have skyrocketed 113.1% in a year’s time, outperforming its industry’s growth of 22.2%.
NeoGenomics, Inc., (NEO - Free Report) and its subsidiaries operate a network of cancer-focused genetic testing laboratories in the United States. The stock is a Zacks #1 Ranked player and has a VGM Score of B. For 2019, the consensus estimate for earnings represents a 31.11% year-over-year surge.
Shares of the company have soared 46.4% in the past year against its industry’s decline of 18.5%.
Merit Medical Systems, Inc. (MMSI - Free Report) is involved in designing, developing, manufacturing and marketing many disposable medical devices. The stock has a VGM Score of B and its 2019 Zacks Consensus Estimate for earnings depicts a 17.37% year-over-year increase.
Shares of this #2 Ranked company have jumped 35.3% in a year versus its industry’s decline of 2.6%.
Medpace Holdings, Inc. (MEDP - Free Report) is a clinical contract research organization and is involved in providing scientifically-driven outsourced clinical development services to the biotechnology, pharmaceutical and medical device industries around the globe.
The stock has a Zacks Rank of 2 and a VGM Score of A. Its Zacks Consensus Estimate for earnings indicates a 15.3% year-over-year rise. Shares of this company have soared 61% in a year’s time, outperforming its industry’s increase of 28.5%.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>