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The healthcare sector is generally known as a growth sector, especially because it includes industries such as biotech. However the sector is diverse and also includes mega-cap drug companies and health insurance providers as well. These industries contribute to healthcare's defensive characteristics, since its services are needed in good times and bad.

For a deeper look into the healthcare sector's stocks, we ran a screen keeping smart money sentiment in mind. We began by screening for healthcare names with market caps above $300 million and those that also appear undervalued relative to earnings growth, with PEG below 1.

We then screened for those with significant net institutional purchases over the current quarter, indicating that on average institutional investors such as hedge fund managers expect these names to outperform.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these names are poised for success? Use this list as a starting point for your own analysis.

1. Akorn, Inc. (AKRX): Engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs, and injectable pharmaceuticals in the United States and internationally. Market cap at $1.13B. PEG at 0.64. Net institutional purchases in the current quarter at 6.4M shares, which represents about 9.56% of the company's float of 66.97M shares.

2. CIGNA Corporation (CI): Operates as a health service organization. Market cap at $14.07B. PEG at 0.99. Net institutional purchases in the current quarter at 15.4M shares, which represents about 5.39% of the company's float of 285.67M shares.

3. DepoMed Inc. (DEPO): Develops and commercializes pharmaceutical products based on its proprietary oral drug delivery technologies in the United States. Market cap at $353.92M. PEG at 0.17. Net institutional purchases in the current quarter at 2.6M shares, which represents about 5.03% of the company's float of 51.72M shares.

4. Elan Corp. plc (ELN): Operates as a neuroscience-based biotechnology company primarily in Ireland and the United States. Market cap at $8.75B. PEG at 0.31. Net institutional purchases in the current quarter at 28.8M shares, which represents about 5.96% of the company's float of 482.94M shares.

5. PDL BioPharma, Inc. (PDLI): Engages in the management of antibody humanization patents and royalty assets, which consist of Queen et al. Market cap at $891.04M. PEG at 0.39. Net institutional purchases in the current quarter at 10.6M shares, which represents about 8.8% of the company's float of 120.43M shares.

6. Questcor Pharmaceuticals, Inc. (QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Market cap at $2.39B. PEG at 0.76. Net institutional purchases in the current quarter at 2.8M shares, which represents about 4.73% of the company's float of 59.18M shares.

7. Sun Healthcare Group Inc. (SUNH): Provides health care services primarily for senior population in the United States. Market cap at $494.43M. PEG at 0.73. Net institutional purchases in the current quarter at 1.0M shares, which represents about 5.04% of the company's float of 19.85M shares.

8. Transcend Services, Inc. (TRCR): Provides medical transcription services in the United States. Market cap at $314.05M. PEG at 0.98. Net institutional purchases in the current quarter at 602.2K shares, which represents about 6.43% of the company's float of 9.36M shares.

9. USANA Health Sciences Inc. (USNA): Develops, manufactures, distributes, and sells nutritional and personal care products worldwide. Market cap at $561.38M. PEG at 0.72. Net institutional purchases in the current quarter at 421.8K shares, which represents about 6.2% of the company's float of 6.80M shares.

*Institutional data sourced from Fidelity, all other data sourced from Finviz.

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

Source: 9 Undervalued Healthcare Stocks With Strong Hedge Fund Buying