Sep 2, 2022 - Jack Dalton
Based on the fact that you are reading this article, I am assuming that you are currently looking for the best Healthcare stocks to buy right now. Luckily, you are in the right place as I am going to research and display some of the best Healthcare stocks to buy right now. Sound interesting? Let's go.
Firstly, the Healthcare sector has performed well as it is up by 40.22% over the past 3 months, which has piqued the interest of investors looking to capitalize on the sectors recent momentum. Additionally, the average PE ratio in the Healthcare sector is 6.06, implying that the sector is undervalued (as it is less than 20, which is considered “good”). Lastly, the Healthcare sector's average dividend is 2.55%. Since the average dividend in the Healthcare sector falls within the 2-6% range, it is considered to be ideal. This is due to the fact that a 2-6% dividend attracts investors while retaining enough earnings for a company to make prolific investments.
Taking everything into account, it seems as though the Healthcare sector is a very attractive sector to invest in. Now that we have determined the Healthcare sector to present a great investment opportunity, we now need to find the 3 best stocks in the Healthcare sector to buy right now.
Novartis ag (NYSE: NVS) has more than earned its place among the top 3 Healthcare stocks to buy right now. Novartis ag has consistently displayed its ability to turn a profit on its investments in both the use of assets and the deployment of its capital. This is the result of NVS's ROA being 18.7% and its ROIC being 11.42%. Furthermore, if this wasn't enough, Novartis ag's ROA and ROE are both greater than the average of the Healthcare sector, which are -59.65% and -5.49% respectively.
Firstly, NVS's gross profit margin is 70.6% which is greater than the Healthcare sector average of 64.4%. The fact that NVS has a gross profit margin that is 6.2 percentage points greater than their sector is fantastic as it will enable Novartis ag to make more income than an average Healthcare company. This additional income will allow Novartis ag to make additional investments which should generate a higher return for investors (as NVS's current ROA is 18.7%).
RENAISSANCE TECHNOLOGIES LLC just picked up 402.2k shares of the NVS stock, which now takes their total NVS holdings up to 3.78M, representing an increase in their NVS holdings of 11.9%. This recent acquisition of NVS shares is noteworthy as RENAISSANCE TECHNOLOGIES LLC has achieved 1 year, 3 year, and 5 year returns of -18%, 23.47%, and 64.22% respectively. This may not seem like it is anything special, however, when comparing these returns to the S&P 500, we can see that RENAISSANCE TECHNOLOGIES LLC's fund has been able to outperform the S&P 500 in 1/3 of the timeframes analyzed, as the fund has a relative performance to the S&P 500 of -6.09%, -5.21%, and 8.02% respectively. Now you might be thinking, “Renaissance only beat the S&P in 1 timeframe, why bring that up?” Well, when you look at the fact that this timeframe was the 5-year timeframe, it demonstrates their ability to outperform in the longer-run (bigger picture) which is arguably the most important.
Lastly, the NVS stock offers a 4.1% dividend yield, which is ideal. This is ideal because their dividend is high enough to attract long-term/dividend investors while being low enough to retain earnings to re-invest in projects that would generate a higher return for their shareholders.
Overall, I think that there are many reasons to like the NVS stock, however, these reasons are the least convincing out of the 3 stocks to be discussed today. This has led me to place them in the bottom position in this list.
Dynavax technologies corporation (NASDAQ: DVAX) is one of the smaller Healthcare stocks, as DVAX's market cap ($1.46B) is lesser than the weighted-average market cap of Healthcare stocks, which is currently $155.69B. The fact that DVAX is a lesser-known stock in the Healthcare sector makes it a more compelling investment as it theoretically should be a volatile investment, which should have its place in every portfolio.
Firstly, lets talk about the DVAX stock's analyst ratings. Currently, the overall analyst consensus seems to be bullish, as there are 18 analysts "buy" ratings, 2 "hold" ratings, and 0 "sell" ratings. Adding these up results in a total of 20 DVAX analyst ratings with 90% being "buy" ratings (which is higher than previous ratings where "buys" represented 80% of total ratings). The current analyst ratings are more bullish than the previous analyst ratings as "buy" ratings increased by 12.5%.
This bullish outlook on the DVAX stock is not unique to just the analysts, as investors are becoming more bullish as well. This can be seen in the large decrease in short interest seen over the past month. The short data from Marketbeat shows that the level of shares being sold short has dropped from 19.38M (July 15, 2022) to just 17M shares (Aug 15, 2022) over the course of the past month. This represents a decrease in the number of short shares of 12.28%. This large decrease in short interest means that people are becoming increasingly scared to bet against the DVAX stock, which means that they think the DVAX stock will increase.
Lastly, Dynavax technologies corporation currently has a debt ratio of 45.73%, meaning that they are considered to be of "normal" leverage as they have -4.27 percentage points less debt than what is considered to be the start of "High leverage" (50%+). Having a good level of debt can help ease any insolvency worries that we may have, however, it is important to check DVAX's interest coverage ratio to see how likely insolvency is if debt does become a problem in the future. DVAX has an interest coverage ratio of 38.07, meaning that they can pay their interest expense (on their income statement 38.07 times over. Having an interest coverage ratio above a 3 is considered to be ideal, so DVAX's ICR of 38.07 is more than enough to alleviate any debt worries that we may or may not have had. This is very important as the healthcare industry is a very high-growth and volatile space, so knowing that a healthcare company is financially healthy automatically makes them worth considering.
Overall, I think that the DVAX stock could be one of the better healthcare investments to take right now. However, I am not as confident in Dynavax as I am in other healthcare stocks, which is why I have placed them as number 3 on this list.
There are a couple of reasons why I chose to add Biontech se to the list of my 3 best Healthcare stocks to buy right now. One of which is the fact that BNTX's dividend yield (of 2.1%) is below the weighted-average dividend of the Healthcare sector, which is currently 2.14%. Now you might be thinking “why is this a reason why you like the stock?”, well when considering the fact that the BNTX stock is able to generate an ROE of 88.09% (larger than the Healthcare sector weighted average), I would prefer the BNTX stock to pay out a low dividend. This is due to the fact that by offering a smaller dividend, Biontech se can retain more of their net income, which they can invest and yield a higher return for their investors than they would by distributing a higher dividend.
Firstly, BNTX is still in the process of recovering from a large decrease of -3.71% which occurred on Aug 8, 2022. This decrease was the result of their less-than-ideal financial report for Q2 2022, which shed $19.61 from BNTX's previous share price (which was $183.11). This dip has provided a great opportunity to become a BNTX investor as when their stock has historically experienced such a decrease it has returned an average of 32.49% over the next 3 months. Furthermore, if this wasn't enough incentive to look at Biontech se, their stock has proven to be a great long-term investment regardless of their sudden dips as they have returned 932.87% over the past 5 years.
Furthermore, Biontech se offers great value when comparing its financial ratios to that the average ratios of the Healthcare sector. BNTX's relative value has become increasingly attractive, especially after its recent 3% dip. Biontech SE's value will be displayed by comparing the 3 most commonly used comparable ratios; P/E, P/B, and EV/S. Firstly, the BNTX stock currently has a P/E ratio of 3.22, a P/B ratio of 1.81, and an EV/S ratio of 1.26, compared to the Healthcare sector averages of 6.06, 3.52, and 2.15 respectively. Using this information, we can determine that the BNTX stock needs to experience changes of 88.21%, 94.35%, and 70.29% to be considered “at fair value” (respectively). By taking a simple average of these figures we arrive at an expected increase of 84.28% for the BNTX stock. This represents a large upside potential for the BNTX stock and is a big reason why I have included its stock in this list.
Lastly, BNTX's gross profit margin is 77.3% which is greater than the Healthcare sector average of 64.4%. The fact that BNTX has a gross profit margin that is 12.9 percentage points greater than their sector is fantastic as it will enable Biontech se to make more income than an average Healthcare company. This additional income will allow Biontech se to make additional investments which should generate a higher return for investors (as BNTX's current ROA is 55.53%).
As you can see there are many reasons to like the BNTX stock, some of which I highlighted in this article, and some of them I haven't yet touched upon. I recommend you to do your own research before investing into the BNTX stock, however, I would advise you to at least check them out!