4 Healthcare Stocks To Get You Well Ahead Of Earnings

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 |  Includes: ABBV, ABT, BSX, JNJ, PFE
by: Richard Saintvilus

There continues to be plenty of discussion about "Obamacare" and its impact on the healthcare sector as a whole. But regardless of which side of the fence you are on, these large companies are not as brittle as some analysts may lead you to believe. Besides, astute investors that are looking for "healthy returns" should know that there are very few sectors as safe as healthcare - particularly in volatile markets where safety becomes a priority. As such, here are a few names to consider ahead of earnings.

Buy Abbott Labs (ABT)

Medical devices giant Abbot Labs will report first-quarter earnings on Wednesday, April 17. Despite the fact that shares are trading at their 52-week high, this is still a stock that I find very attractive. While Abbott does have to face stiff competition from the likes of Johnson & Johnson, this is a company with excellent fundamentals. And following Abbott's recent split-off of its drug business AbbVie (NYSE:ABBV), the remaining portions of Abbott is looking leaner.

In its most recent quarter, earnings arrived at $1.05 billion or 66 cents per share. While this was down pretty sharply on a year-over-year basis, this was due to higher restructuring costs and an early debt payment of $858 million, which accounted for 54 cents per share. When these costs are taken out, earnings actually arrived at $1.51 per share - beating Street estimates by 1 penny.

Likewise, revenue advanced 4.4% to $10.84 billion. This is despite an unfavorable currency rate that lowered revenue by 1.2%. Even then, Abbott was still able to top Street estimates of $10.58 billion - helped by a 10.2% increase in the nutrition business -proving that management has a strong pulse on this business and will get Abbott posting double-digit revenue growth as planned.

What's more, the company's new stent platform is capturing share from the rest of its peers, and I believe many investors under-appreciate the quality and growth potential of Abbott's diagnostics franchise. With a solid long-term record of cash flow growth, a good return on capital, and manageable debt, this is a solid medical play for dividend-seeking investors.

Buy Johnson & Johnson (JNJ)

Johnson & Johnson will report its first-quarter earnings on Tuesday, April 16, before market opens. The Street will be looking for earnings of $1.40 per share on revenue of $17.48 billion. Essentially, profits are expected to grow at 3%, while revenue is seen rising 8.2% year over year. It's worth noting here that the Street has lowered EPS estimates by about 2 cents over the past 90 days.

Estimates have fallen despite the fact that JNJ increased Q4 profits, which ended a streak of two consecutive quarters of profit declines. Shares are up more than 17% so far this year, and investors are wondering how far the stock can go. The company appears rejuvenated and investors are unsure of how far the stock can go, while attributing JNJ's recent strong performance to the company's acquisition of Synthes.

As I've said before, management deserves credit for seeing an opportunity in Synthes that is now contributing to its bottom line. At some point, there shouldn't be a question as to what isn't "organic" growth. That has never mattered to the bottom line. Besides, even when removing some special items from JNJ's Q4 report, earnings arrived at $1.19 per share - topping Street estimates of $1.17.

Plus, there are many more growth catalysts on the way such as JNJ's new cancer drug, Zytiga, which posted 74% revenue growth in the fourth quarter. The drug continues to gain incredible traction. While the stock is not cheap at a P/E of 21 and having reached a new 52-week high, the stock should do well as long as management continues to improve margins and synergize the medical devices business.

Buy Boston Scientific (BSX)

Shares of Boston Scientific are up more than 33% so far this year. In a space dominated by much bigger rivals like Johnson & Johnson and Pfizer (NYSE:PFE), investors should not discount the prospect of Boston Scientific. With a bit of luck, this company has the potential to be one of the best turnaround stories in the healthcare sector. But it's not going to be easy.

The company is one of the leading producers of medical devices that are used in a range of interventional medical specialties. Last week, the company received FDA approval to test its Precision Spectra Spinal Cord Stimulator System, which is a SCS system with Illumina 3D software and 32 contacts, and is designed to provide improved pain relief to a wide range of patients who suffer from chronic pain.

Pain, however, was what investors felt following the company fourth-quarter results that saw profits fall 44%. As with Abbott Labs, profitability was severely impacted by higher restructuring charges. However, the company was not discouraged by the results and management instituted expansion plans, which also included some severe cuts in expenses.

The company will report earnings on April 25 and had previously guided for earnings per share to arrive at 14 cents to 17 cents on revenue of $1.74 billion to $1.82 billion, both of which were in-line to slightly higher than Street estimates. Despite the recent surge in the shares, investors should expect the stock to approach $8.50 by the second half of the year on the basis of solid free-cash-flow growth.

Buy Pfizer (PFE)

If Johnson & Johnson is "1-A" in the healthcare sector, Pfizer (to me) has always been "1-B." There are many reasons to be impressed by this company. However the best reason has been its consistent market -beating performances. These performances have earned Pfizer a reputation which bought the company some time after posting "un-Pfizer-like" fourth-quarter results, which included a 7% decline in revenue that caused investors to raise some eyebrows.

However, the decline was due to an unfavorable exchange rate of 2%. Nevertheless, revenue still managed to beat Street estimates of $15.1 billion by as much as 5%. What's more, even though fourth-quarter pharmaceuticals shed 9% year-over-year, when compared to the 18% decline in Pfizer's third-quarter results, the rate of deceleration slowed by 50%.

Management put more of an emphasis on marketing its existing portfolio of products such as Lipitor and Norvasc, all of which contributed to an operational sales growth of 20% in emerging markets. And management mentioned the strong performance of China as a key contributor. Profitability was solid - net income arrived at $6.3 billion, or 85 cents per share, compared to a net income of $1.4 billion in the year-ago quarter.

The company received a big boost from the sale of the nutrition business to Nestle for $11.5 billion. Excluding the sale and other restructuring efforts, net income would have arrived at $3.5 billion, of 47 cents per share, which is still 3 cents better than Street estimates. Impressively, the consumer health business jumped 16% year over year.

Even at its 52-week high, I would be a buyer at current levels. On the basis of solid free-cash-flow growth, the stock is cheap. What's more, given that shares are trading at a P/E of 15, which is 3 points below the industry average and 8 points below Merck (NYSE:MRK), Pfizer has the potential to reach $35 to $38 by the second half of the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.