Top Healthcare Companies With The Highest Upside Potential

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 |  Includes: BMY, JNJ, LLY, MCK, MDT, PFE, STJ
by: Insider Monkey

The best performing stocks in the market are usually the highest growing stocks or the stocks with the highest expected growth rates. This doesn’t mean that one should be invested in growth stocks and stay away from the value stocks at all times. Historically value stocks managed to beat the growth stocks hand over fist. The reason is simple. Value stocks are beaten down stocks with very low or negative growth expectations. Not surprisingly it is easier for these stocks to beat the expectations on the average. On the other hand, everybody is extremely bullish about growth stocks and expects them to have higher growth rates in the future. Their stock prices also reflect this fact. Not surprisingly, it is more difficult for these stocks to beat these challenging expectations.

We ranked healthcare companies based on their expected five-year growth rates. These stocks are at least $7 Billion in market cap. The data source is Yahoo Finance. Contrarian investors should look into the stocks that are at the top of the table.

Company name

Symbol

Market cap

Forward PE

Expected 5-Year Growth Rate

Eli Lilly & Co.

LLY

41.75B

9.76

-4.74

Bristol Myers

BMY

52.19B

15.03

0.66

Pfizer Inc.

PFE

136.07B

7.62

3.36

Merck & Co., Inc.

MRK

95.04B

8.09

4.30

Johnson & Johnson

JNJ

167.46B

11.68

5.12

Amgen, Inc.

AMGN

50.80B

9.82

6.73

Medtronic, Inc.

MDT

34.41B

8.9

8.17

Abbott Labs

ABT

79.23B

10.15

8.25

Baxter Intl

BAX

30.11B

11.41

8.33

DENTSPLY Intl

XRAY

4.37B

13.38

9.04

Becton, Dickinson

BDX

15.95B

11.9

9.22

C.R. Bard, Inc.

BCR

7.40B

12.32

9.33

Stryker Corp

SYK

17.78B

11.11

9.50

Quest Diagnostics

DGX

7.51B

10.19

9.70

St. Jude Medical

STJ

12.59B

10.5

9.91

Perrigo Company

PRGO

8.75B

18.38

9.94

Cardinal Health

CAH

14.27B

11.93

10.03

Covidien plc

COV

22.35B

10.73

10.52

McKesson

MCK

18.00B

10.46

11.13

AmerisourceBergen

ABC

10.15B

13.43

12.21

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LLY is expected to shrink over the next five years. As a result its PE ratio is extremely low. Jim Simons has about 388 million in LLY. Michael Messner initiated a brand new $21 million LLY position during the second quarter.

There are other health care companies trading at lower prices because of low expected growth rates: BMY and PFE. One of the stocks hedge funds are extremely bullish about is BMY. Jim Simons and D.E Shaw increased their holdings in BMY shares during the second quarter. Steven Cohen also has BMY in his portfolio.

Another stock that hedge funds heavily invested during the past few months is PFE. David Einhorn invested $483 million in PFE, which contributes 10% of his portfolio. Ken Fisher and Lee Ainslie hold more than $400 million in PFE shares. D.E Shaw increased his position in PFE by 83%.

JNJ is also a promising stock. Warren Buffett has a large holding of JNJ, more than $2.8 billion, which is 5.53% of his portfolio. Ken Fisher increased his holdings in JNJ and held $713 million in JNJ shares at the end of June. Richard Driehaus also initiated $2 million JNJ position.

Usually stocks with higher expected growth rates trade at much higher multiples. Some of the stocks with higher expected growth rates in our list have very attractive multiples. MCK, COV, STJ, and MDT deserve a closer look. Insiders are getting bullish about some of these stocks as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.