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5 Great Medical Stocks to Buy Ahead of Q4 Earnings
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In 2018, health care stocks emerged as some of the best performers for the S&P 500, which itself closed the year in the red. Looking ahead, multiple headwinds are clouding the market outlook for the year 2019. These include the ongoing trade war with China, the interest rate situation and concerns about an impending global slowdown.
In the absence of a strong aggressive strategy to boost gains, it is better to adopt a strong defensive tactic to shore up hard won profits. Health care fits the bill perfectly, since it offers defensive growth over the longer term. This is why it is a good idea to pick up select stocks from the sector that are likely to outperform their earnings estimates.
Most Favored S&P 500 Sector of the Year
A Reuters review of 13 prominent Wall Street Research firms reveals that health care is the most favored of the S&P 500’s 11 major sectors at the start of 2019. These firms issue recommendations about what weight is to be assigned to these groups in investment portfolios.
Notably, in 2018, health care stocks in the S&P 500 gained 4.7%. Along with utilities, it was only of the two S&P 500 sectors to close 2018 in the green. The benchmark itself lost 6.2% last year.
A large section of analysts think the sector’s attractive valuations, sturdy balance sheets and steady dividends are major factors working in its favor. The group’s positive earnings outlook is another major positive even as it remains less vulnerable to cyclical downtrends compared to other sectors.
When the economy faces a slowdown, most investors avoid sectors that benefit from an upswing. However, they do not want to adopt an ultra-defensive stance. Health care fits the bill nicely with its diversified earnings stream, which helps in striking a healthy balance between risk and returns.
The diverse nature of health care’s earnings stream stems from the variety of business under its huge umbrella. The sector’s width spans prescription drug makers, medical device manufacturers, medical insurers, hospitals and tool providers for scientific research.
In simple terms, this means that along with rock-steady options, large-cap pharma companies, the sector also includes such fast-growing categories as biotechs. Sectors such as these offer appreciably higher returns, along with a jump in risk, of course.
However, earnings and revenue growth for sectors across the board are expected to decelerate appreciably in the fourth quarter. For medical stocks, total Q3 earnings were up 13.2% on 7.6% higher revenues.
But total Q4 earnings for the sector are expected to be up 7.1% on 6% higher revenues. This represents a considerable decline in pace, but is still better than autos, conglomerates and utilities. Earnings growth for these sectors is set to decline 13.8%, 13.1% and 6.3%, respectively.
Notably, utilities stocks were among the best performers for the S&P 500 last year. The relatively superior earnings prospects of health care stocks bear out their favored status among the broader benchmark’s sectors this year.
For the S&P 500 index as a whole, total Q4 earnings are expected to be up 10.5% from the same period last year on 5.3% higher revenues. (Read: Can Earnings Reports Push Bank Stocks Higher?)
Our Choices
It comes as no surprise that health care has emerged as a favorable option for investors. The sector continues to offer the prospect of high-quality, market-beating growth. It is also relatively resistant to the multiple macroeconomic headwinds the economy and equity markets are facing at the moment.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Intuitive Surgical Inc. (ISRG - Free Report) designs, manufactures and markets the da Vinci surgical system and related instruments and accessories, which is an advanced robot-assisted surgical system.
Intuitive Surgical beat the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 13.2%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +1.34% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Intuitive Surgical in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Jan 24.
Illumina, Inc. (ILMN - Free Report) is a life sciences company which provides tools and integrated systems for analysis of genetic variation and function.
Illumina surpassed the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 27.3%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +0.90% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Illumina in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Jan 29.
HCA Healthcare, Inc. (HCA - Free Report) is the largest non-governmental operator of acute care hospitals in the United States.
HCA Healthcare beat the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 11.2%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +2.09% and a Zacks Rank of 1 — our proven model shows that an earnings beat is expected for HCA Healthcare in the to-be-reported quarter.
The company is expected to report fourth-quarter 2018 results on Jan 29.
Elanco Animal Health Incorporated (ELAN - Free Report) operates as an animal health care company. It develops, manufactures and markets products for companion and food animals.
Powered with the right combination of the two key ingredients — an Earnings ESP of +2.86% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Elanco Animal Health in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Feb 5.
Humana Inc. (HUM - Free Report) is one of the largest health care plan providers in the United States.
Humana topped the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 4.7%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +0.22% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Humana in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Feb 6.
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5 Great Medical Stocks to Buy Ahead of Q4 Earnings
In 2018, health care stocks emerged as some of the best performers for the S&P 500, which itself closed the year in the red. Looking ahead, multiple headwinds are clouding the market outlook for the year 2019. These include the ongoing trade war with China, the interest rate situation and concerns about an impending global slowdown.
In the absence of a strong aggressive strategy to boost gains, it is better to adopt a strong defensive tactic to shore up hard won profits. Health care fits the bill perfectly, since it offers defensive growth over the longer term. This is why it is a good idea to pick up select stocks from the sector that are likely to outperform their earnings estimates.
Most Favored S&P 500 Sector of the Year
A Reuters review of 13 prominent Wall Street Research firms reveals that health care is the most favored of the S&P 500’s 11 major sectors at the start of 2019. These firms issue recommendations about what weight is to be assigned to these groups in investment portfolios.
Notably, in 2018, health care stocks in the S&P 500 gained 4.7%. Along with utilities, it was only of the two S&P 500 sectors to close 2018 in the green. The benchmark itself lost 6.2% last year.
A large section of analysts think the sector’s attractive valuations, sturdy balance sheets and steady dividends are major factors working in its favor. The group’s positive earnings outlook is another major positive even as it remains less vulnerable to cyclical downtrends compared to other sectors.
When the economy faces a slowdown, most investors avoid sectors that benefit from an upswing. However, they do not want to adopt an ultra-defensive stance. Health care fits the bill nicely with its diversified earnings stream, which helps in striking a healthy balance between risk and returns.
Diversified Earnings Stream Strikes Healthy Balance
The diverse nature of health care’s earnings stream stems from the variety of business under its huge umbrella. The sector’s width spans prescription drug makers, medical device manufacturers, medical insurers, hospitals and tool providers for scientific research.
In simple terms, this means that along with rock-steady options, large-cap pharma companies, the sector also includes such fast-growing categories as biotechs. Sectors such as these offer appreciably higher returns, along with a jump in risk, of course.
However, earnings and revenue growth for sectors across the board are expected to decelerate appreciably in the fourth quarter. For medical stocks, total Q3 earnings were up 13.2% on 7.6% higher revenues.
But total Q4 earnings for the sector are expected to be up 7.1% on 6% higher revenues. This represents a considerable decline in pace, but is still better than autos, conglomerates and utilities. Earnings growth for these sectors is set to decline 13.8%, 13.1% and 6.3%, respectively.
Notably, utilities stocks were among the best performers for the S&P 500 last year. The relatively superior earnings prospects of health care stocks bear out their favored status among the broader benchmark’s sectors this year.
For the S&P 500 index as a whole, total Q4 earnings are expected to be up 10.5% from the same period last year on 5.3% higher revenues. (Read: Can Earnings Reports Push Bank Stocks Higher?)
Our Choices
It comes as no surprise that health care has emerged as a favorable option for investors. The sector continues to offer the prospect of high-quality, market-beating growth. It is also relatively resistant to the multiple macroeconomic headwinds the economy and equity markets are facing at the moment.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Intuitive Surgical Inc. (ISRG - Free Report) designs, manufactures and markets the da Vinci surgical system and related instruments and accessories, which is an advanced robot-assisted surgical system.
Intuitive Surgical beat the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 13.2%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +1.34% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Intuitive Surgical in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Jan 24.
Illumina, Inc. (ILMN - Free Report) is a life sciences company which provides tools and integrated systems for analysis of genetic variation and function.
Illumina surpassed the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 27.3%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +0.90% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Illumina in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Jan 29.
HCA Healthcare, Inc. (HCA - Free Report) is the largest non-governmental operator of acute care hospitals in the United States.
HCA Healthcare beat the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 11.2%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +2.09% and a Zacks Rank of 1 — our proven model shows that an earnings beat is expected for HCA Healthcare in the to-be-reported quarter.
The company is expected to report fourth-quarter 2018 results on Jan 29.
Elanco Animal Health Incorporated (ELAN - Free Report) operates as an animal health care company. It develops, manufactures and markets products for companion and food animals.
Powered with the right combination of the two key ingredients — an Earnings ESP of +2.86% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Elanco Animal Health in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Feb 5.
Humana Inc. (HUM - Free Report) is one of the largest health care plan providers in the United States.
Humana topped the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 4.7%.
Powered with the right combination of the two key ingredients — an Earnings ESP of +0.22% and a Zacks Rank of 2 — our proven model shows that an earnings beat is expected for Humana in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2018 results on Feb 6.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>