September 19, 2018
Over the past few weeks, I've been covering some of my top sector bets. First, I called out three all-American refiners that are excellent buys at current prices. Last week, I revealed three top technology plays to buy before the end of the month.
This week, I'm featuring another sector that I'm especially excited about. I'll explain why I'm so bullish about this sector, as well as my four top plays. Keep reading for more details…
The healthcare industry is at the center of a powerful—and profitable—shift.
The nation is in the midst of a major healthcare buying spree. According to the non-partisan Centers for Medicare & Medicaid Services (CMS), spending on healthcare in America jumped 4.6% to $3.5 trillion in 2017.
Under current law, national healthcare spending is projected to grow at an average annual rate of 5.5%, and represent 19.7% of Gross Domestic Product (GDP) by 2026. That means that healthcare spending will account for nearly a fifth of the nation's GDP.
That's because we are in the middle of a major demographic trend that ensures that Americans will spend more than ever on healthcare: The aging of America.
Every day, 10,000 new Medicare recipients begin cashing in on their new health benefits for the rest of their lives. From doctor's visits to medical tests and procedures to prescription drugs and nursing home care, it's all covered.
For these reasons, healthcare will remain a growth industry in the years to come. So today, let's review four of my top healthcare plays, as well as why I expect them to profit from this exponential surge in healthcare spending.
Align Technology, Inc. (ALGN) is a global medical device company known for designing and producing Invisalign, OrthoCAD digital services and iTero Intraoral scanners, all of which are used by dental professionals. You may be most familiar with the Invisalign product founded by Align Technology in 2001. The clear aligners are a better alternative to traditional metal braces for adults and teenagers. Today, Align Technology has helped treat over four million patients in over 90 countries with the Invisalign system.
Align Technology posted record top- and bottom-line growth in the second quarter, thanks to booming demand for its Invisalign clear aligners. During the second quarter, the company reported 302,700 total Invisalign shipments, or 30.5% annual growth. Align Technology also reported 37.5% annual sales growth of $490.3 million and 53.4% annual earnings growth of $106.1 million, or $1.30 per share.
For the third quarter, Align Technology expects demand to remains strong, and it anticipates to ship between 302,000 and 307,000 Invisalign cases. So it's not surprising that analysts have increased their earnings per share estimates in the past two months. For the third quarter, the company is forecast to post 17.8% annual earnings growth and 30.5% annual sales growth.
I recommend ALGN in my Growth Investor and Accelerated Profits newsletters. Current subscribers can view my Buy Below prices on the High-Growth Investments Buy List here, or on the Breakthrough Stocks Buy List here.
ABIOMED, Inc. (ABMD) is the only medical devices company that provides technologies that replace or assist the pumping function of a failing heart. This is a big deal because heart disease accounts for some 800,000 deaths in the U.S. alone each year. So ABIOMED provides lifesaving services to tens of thousands of patients and their families. There's strong demand for heart disease treatments, especially ABIOMED's medical devices.
ABIOMED will announce its third-quarter results towards the end of October. And it's shaping up to be a strong report. Analysts are expecting earnings of $0.74 per share on $175.7 million in revenue, or 37% annual earnings growth and 32.2% annual sales growth. Then again, ABMD is one of my earnings heavyweights. Last quarter, it posted a whopping 137.8% earnings surprise. Analysts have revised their earnings estimates higher in recent weeks, so I'll be looking for big things from ABIOMED's third-quarter report.
ABIOMED also recently lifted its outlook for FY 2018. The company expects revenue between $755 million and $770 million, representing 27% to 30% annual sales growth. Clearly, many people rely upon ABIOMED's lifesaving innovations, and this translates to strong sales and earnings.
I also recommend ABMD in my Growth Investor and Accelerated Profits newsletters. Current subscribers can view my Buy Below prices on the High-Growth Investments Buy List here, or on the Ultimate Growth Trades Buy List here.
Intuitive Surgical, Inc. (ISRG) is in a business that sounds like it comes straight from a science fiction novel: Surgical robotics. However, luckily for patients around the world, this revolutionary technology is not only possible, it is becoming more and more integrated into everyday hospital use.
Intuitive Surgical got its big break in 1999 when it introduced the da Vinci surgical system. Complete with a surgeon's console, a patient-side cart, a 3-D vision system and wrist instruments, this system allows doctors to perform minimally invasive surgery with enhanced dexterity, precision and control. This technology benefits the patients, who usually experience less pain, a shortened hospital stay, fewer infections and less scarring.
This neat system has steadily caught on in the healthcare industry. Last year alone, the company's systems were used in 877,000 procedures around the world. This has resulted in strong top- and bottom-line growth.
Last quarter, worldwide procedures rose 18% over last year. This drove strong top- and bottom-line growth. Compared with Q2 2017, sales increased 20% to $909 million. Over the same period, adjusted earnings rose 38% to $2.76 per share. Analysts expected $2.50 EPS on $877.6 million in revenue, so Intuitive Surgical posted a 10.4% earnings surprise and a 3.6% sales surprise.
Looking ahead, Intuitive Surgical is expected to keep up the momentum. For FY 2018, analysts are forecasting 17.9% annual sales growth and 20.6% annual earnings growth. ISRG shares have been steadily climbing higher this year, and I expect this winning streak to continue.
I recommend ISRG in my Growth Investor newsletter. Current subscribers can view my Buy Below prices on the High-Growth Investments Buy List here.
UnitedHealth Group Inc. (UNH) is another heavy hitter in the healthcare sector, being the largest single health carrier in the United States. In serves more than 120 million people worldwide and is a parent company to six businesses, including UnitedHealthcare. Its other main branch, Optum, administers everything from mental health and substance-abuse programs to mail-order pharmaceuticals.
UNH is a healthy company in more ways than one. Its return on equity is top-notch, and it has a strong track record of beating analysts' earnings estimates quarter-after-quarter. Just take a look at its latest earnings report…
Last quarter, revenues rose 12% year-on-year to $56.1 billion. This was in line with analysts' expectations. Earnings climbed 13% year-on-year to $4.2 billion. Excluding special items, adjusted earnings came in at $3.14 per share. The consensus estimate was for $3.04 EPS, so UnitedHealth Group posted a 3.3% earnings surprise.
The insurer also lifted its earnings forecast for FY 2018. The company now expected earnings to range between $12.50 and $12.75 per share, up from its prior forecast of $12.40 to $12.65 per share. The revised guidance represents between 24.1% and 26.6% annual earnings growth.
I must also mention that UNH offers a 1.2% annual dividend yield. The company recently boosted its quarterly dividend by 20%. UnitedHealth Group is also currently buying back 100 million shares of its stock, or about 10% of shares outstanding.
In addition to maintaining solid sales and earnings, UNH is clearly committed to its shareholders. For these reasons, I recommend UNH in my Growth Investor newsletter. Current subscribers can view my Buy Below prices on the High-Growth Investments Buy List here.
To summarize, the healthcare industry is booming, and it shows no signs of slowing down. This is great news for the four healthcare companies I just featured: Align Technology (ALGN), ABIOMED Inc. (ABMD), Intuitive Surgical (ISRG) and UnitedHealth Group (UNH). Whether you subscribe to my premium newsletters or not, I recommend these four stocks for new money.
That's all for this week. I'll be back in touch on Monday with the latest upgrades and downgrades in Portfolio Grader.