As the economic turmoil continues to hamper growth and raise fears for investors, capital preservation rather than appreciation is worth a consideration. Moreover, recession-proof companies that may have low growth, but are consistent, are a solid investment to weather this economic storm and still provide a decent return. Health stocks are widely considered to be recession-proof as people get sick and need medical attention whether the economy is good or bad. Moreover, they tend to have a consistent revenue base once they've established themselves and their brand. Below are companies I've found to not only be very stable, but also to be trading at favorable valuations.
United Health Group (UNH) is the largest HMO in the world near $100B in annual revenue. The stock looks favorably priced at a 10x P/E, .5x EV/S, 1.4% dividend yield, and as of last quarter 86.5% of shares held by institutions. Moreover, the payout ratio is extremely low at 13%, so expect continued dividend hikes. This is a good buy at these levels.
Pfizer (PFE) offers prescription medicines for humans and animals worldwide. This healthcare giant had revenue close to $70B this prior year and currently is trading at 13.5x P/E, 1.7x P/B, 6.1x EV/EBITDA, has a very nice 4.1% dividend yield, and as of last quarter 70.9% of shares were held by institutions. With a payout ratio at 54% and annual FCF of approximately $10B, the high dividend in this very low rate environment looks not only secure, but poised for a raise in the coming quarters.
Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the healthcare field worldwide. The company had revenue approaching $65B this past year and currently is trading at 15x P/E, 8.4x EV/EBITDA, very nice return on assets and equity in excess of 9% and 19% respectively, a 3.6% dividend yield, and as of last quarter 64.2% of shares held by institutions. With a payout ratio near 50% and FCF of approximately $14B, it’s safe to assume that JNJ will raise its already sizeable dividend higher in the coming quarters.
WellPoint (WLP) is a giant itself with annual revenue at approximately $60B. The stock looks even cheaper at under 9x P/E, .2x EV/S, 1x P/B, 1.5% dividend yield, and as of last quarter 86.7% of shares held by institutions. The company has approximately $10B in net cash and a very small 7% payout indicating dividend raises in the near future. This is a good buy at these levels.
Aetna (AET) comes in with annual revenue at approximately $35B. The stock trades at 8x P/E, .5x EV/S, 4.2x EV/EBITDA, with a 1.5% dividend yield and as of last quarter 90.0% of shares were held by institutions. I don't see any reason not to own this stock when we see its payout ratio at a paltry 7% as well. This is a good buy here.
Cigna (CI) has favorable valuations as well trading at just under 8x P/E, .6x EV/S, 5.2x EV/EBITDA, and as of last quarter, 86.6% of shares were held by institutions. However, the stock essentially has no dividend and when I see these stocks above displaying similar valuations and having much higher dividends, I'd rather own one of those.
WellCare Health Plans (WCG) is considerably smaller than the previous four with annual revenue at approximately $6B. However, it shows great value with an 11x P/E, .1x EV/S, 1.7x EV/EBITDA, and as of last quarter 84.3% of shares were held by institutions. Even though WCG pays no dividend, it's virtually debt-free and trading at such a cheap valuation. This is a nice buy at these levels.