None of the stocks that passed the screen are biotechs.
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Looking for value in healthcare? Look to the sector’s less flashy corners.
That is the implication of the results of a screen Barron’s ran this week targeting the healthcare stocks that Wall Street analysts think have the furthest to climb.
We screened the healthcare stocks in the S & P 500 for those whose average analyst target prices, as calculated by FactSet, imply gains of at least 25%. Among those stocks, we looked for those which at least 65% of analysts rate at Buy or Overweight, The idea was to narrow the list to stocks that are more or less universally beloved, and to weed out names whose average price targets might be skewed by one or more unusually bullish estimates.
The stocks that came back aren’t biotechs. That shouldn’t be a surprise, given the drubbing big biotech stocks in the S & P 500—think Moderna
(ticker: MRNA), for example—have taken in recent months. They aren’t pharmaceutical firms, either.
Rather, the stocks receiving the thumbs-ups are largely medical-device makers. Three medical-device firms passed our screen: Medtronic
(MDT), Teleflex (TFX), and Zimmer Biomet Holdings (ZBH). Catalent
(CTLT), a contractor for pharmaceutical developers, rounds out the list.
4 Healthcare Stocks Analysts Love
Healthcare stocks in the S&P 500 with price targets that imply at least 25% upside, and which at least 65% of analysts rate a Buy or Overweight.
| Stock / Ticker | Recent Price | Average Target Price | Implied Gain | Positive Rating |
|---|---|---|---|---|
| Catalent / CTLT | $124.88 | $160.46 | 28.5% | 92.9% |
| Medtronic / MDT | 112.86 | 142.59 | 26.3 | 93.0 |
| Teleflex / TFX | 320.76 | 430.20 | 34.1 | 77 |
| Zimmer Biomet Holdings / ZBH | 125.46 | 166.36 | 32.6 | 69.0 |
Source: Factset
Medical-device stocks have lagged behind the market this year. The iShares U.S. Medical Devices ETF (IHI) is up 15.3% so far this year, slightly underperforming the broader healthcare sector, and trailing behind the S & P 500.
The pandemic, and its refusal to abate, have hit the companies hard. When hospitals canceled elective procedures in 2020, sales of medical devices fell sharply. Then late this year, after medical-device manufacturers thought things were getting back to normal, the Delta wave hit them a second time.
Medtronic is a case in point. Back in August, executives were bullish, saying that revenues had jumped 19% on an organic basis for the quarter that ended July 30, and that the impact of the pandemic was abating. That didn’t happen. Sales for the quarter ending in October missed Wall Street’s expectations, and Medtronic cut its revenue guidance.
“The thing that’s changed, that we didn’t fully appreciate, was the nursing shortage in the U.S.,” Chairman and CEO Geoff Martha told Barron’s at the time. While hospital beds weren’t necessarily full with Covid-19 patients, a shortage of nurses that resulted from the pandemic meant that hospitals remained unable to perform procedures using Medtronic’s devices.
The pandemic situation doesn’t seem likely to get much better in the U.S. at any time soon, given the emergence of the Omicron variant. But analysts are bullish on the stocks. Medtronic’s average analyst target price is $160.46, implying a gain of 28.5% from its recent price of $124.88. Teleflex
‘s average analyst target price is $430.20, implying a 34.1% surge from its recent price of $320.76. And Zimmer Biomet Holdings
‘ average analyst target price is $166.36, which is 32.6% above its recent price of $125.46.
Catalent, meanwhile, has an average analyst target price of $160.46, implying a 28.5% rally from its recent level of $124.88. Catalent offers contract development, clinical trial, and manufacturing services to drugmakers. The stock is up 18.1% so far this year.
