Many healthcare stocks have been on a rollercoaster ride over the last few years, buffeted by both positive and negative forces. Among the positive forces are long-term demographic trends and advancements in medical technology. Some of the most negative forces emanate from Washington, including the complexities of ObamaCare and the possibility of cuts to Medicare and Medicaid.
The nine stocks below represent a diverse group of companies in the healthcare area. Most of them have been riding the rollercoaster downwards for a while, but all of them have the potential to bottom out and begin to climb again and see stock profit in the coming months.
Accretive Health (AH) provides "revenue cycle management" services that are used by hospitals and healthcare providers to improve the efficiencies and outcomes of patient treatment. It was growing steadily, and the stock was rising nicely. Then last April, the Minnesota Attorney General claimed that the company was being too aggressive in pursuing patient payments, and the stock went into free fall. The company denied the claims, but management decided to settle in July and move on. The stock has languished, but with no debt, solid liquidity and good cash flow, Accretive has solid long-term gain potential.
CryoLife (CRY) was the first biomedical company to gain approval for a process used to preserve human heart valves for heart reconstruction surgery. It's expanded the product line to include a range of preservation and surgical assist products. Recent operating results have been mixed,and the company has received an FDA warning related to its manufacturing. The FDA issue does not appear to be significant, and operating margins are attractive. The modest dividend appears secure, and the board recently expanded a stock repurchase program. A strong R&D program should bolster long-term growth.
HealthNet (HNT) oversees health insurance programs including group, individual, Medicare and Medicaid, as well as programs for the U.S. Department of Defense and the Veterans Administration. Following several years of strong growth, disappointing results in May triggered the stock's largest one-day drop since 1992. Subsequent results have been mixed as management wrestles with the tough regulatory environment. The most recent numbers began to head back in the right direction, and so the outlook is more positive.
Healthways (HWAY) is a wellness company. It provides evidenced-based programs with personalized interventions for wellness and disease management as well as a range of population screening and assessment tools. As healthcare awareness rises, demand for the company's products should be strong. A disappointing earnings report last October led to a sharp dip in the stock price, and the shares have been slow to recover. However, the new business pipeline has been strong, which bodes well for future stock performance.
Hologic (HOLX) is a leader in making medical imaging and screening products that facilitate 3D imaging. Revenues have grown despite some spending constraints by hospitals. With the company's product offerings being attractive from a cost/benefit perspective, Hologic is well positioned for continued growth. The stock's recent rally following the latest earnings report suggests investors were caught off guard by the results. I suspect that may be repeated in coming quarters.
Kindred Healthcare (KND) provides long-term acute care, rehabilitation and nursing services. The company has been building economies of scale and diversity of services in order to meet the challenges of the healthcare marketplace. A dependency on Medicare and Medicaid has created some near-term headwinds, but being able to bundle the whole range of services from hospital to rehab facilities to the home should position Kindred well for serving our aging population. The financials are sound, and the stock is quite attractively valued.
NxStage Medical (NXTM) developed the first and only truly portable, hemodialysis system cleared for home use by the FDA. Home-based hemodialysis currently accounts for only a very small portion of all dialysis therapies, but there are both medical and economic reasons for its market share to grow. NxStage has yet to achieve profitability, but the balance sheet shows no long-term debt and more than $100 million in cash. Operating cash flow recently turned positive. The stock had a good run out of the 2009 lows, but it has been correcting for more than two years, and now trades at more attractive valuation levels.
Universal American (UAM) is a health benefits provider to the Medicare/Medicaid universe. That brings both challenges and opportunities. In order to better align operations with new healthcare realities, the company sold its Medicare Part D business and distributed $14 per share to shareholders. Then in November, the company's board approved a $1 per share special dividend. With its acquisition of APS Healthcare last year, Universal accelerated its move into Medicaid, a market expected to expand in coming years. Universal is also moving into the newly created market for Accountable Care Organizations.
Wright Medical (WMGI) designs and manufactures devices for the $28 billion orthopedic market. Management is currently focused on building on the company's leading foot & ankle segment where Wright has some 20% of the market. Increased R&D and a revamped sales force are expected to boost growth and profitability. The firm's knee and hip reconstruction business has been a drag on operating gains, but even here there is room for improvement. Management has the products and the financial resources to capture market share in areas with good long-term growth potential.