Undervalued Growth And Dividend Growth In Health Technology

Introduction

Although many Health Technology Sector companies have significantly outperformed the market on a long-term basis, they have significantly underperformed the market since the beginning of 2015. With only a few minor exceptions, this is true for most companies, especially the pharmaceutical companies, operating in this sector.

On the other hand, there are several examples where operating performance has been exemplary even though stock price performance has been dismal.  In my long history analyzing stocks, I have concluded that the combination of strong operating performance coupled with low valuations usually represents a great opportunity. The old adage “buy when there’s blood in the street” or Warren Buffett’s recent recommendation “be greedy when others are fearful and fearful when others are greedy” both apply. This particular scenario applies most aptly to the biotechnology subsector within this broader sector.

Finally, the Health Technology Sector once again provides real-life examples and evidence that it is clearly a market of stocks and not a stock market.  Consequently, from my point of view, the evidence continues to support the notion that it is more important to pay attention to your individual holdings than it does to the general market at large. As I am now more than halfway through the 20 sectors reported on by FactSet this message becomes crystal clear.

A Sector By Sector Review

In part 1 found here, I covered the Consumer Services Sector. In part 2 found here, I covered the Communication Sector. In part 3 found here, I covered the Consumer Durables Sector and its many diverse subsectors. In part 4 found here, I covered Consumer Nondurables. In part 5 found here, I covered companies in the Consumer Services Sector. In part 6 found here, I covered the Distribution Services Sector.  In part 7 found here, I covered the Electronic Technology Sector. In part 8 found here, I covered the Energy Minerals Sector. In part 9 found here, I covered the Finance Sector. In part 10 found here, I covered the Health Services Sector.

In part 11, I will be covering the Health Technology Sector.

In each article in this series, I will be providing a listing of screened research candidates from each of the following industry sectors, the sector I’m covering in this article is marked in green:

Sector 11:  Health Technology

Pharmaceuticals:  Major

Pharmaceuticals:  Other

Pharmaceuticals:  Generic

Biotechnology

Medical Specialties

A Simple Valuation and Quality Screening Process

With this series of articles, I will be presenting a screening of companies that have become attractively valued primarily as a result of the bearish market activities experienced in 2018 from each of the above sectors. I will be applying a rather simple valuation and quality-oriented screen across each of the sectors. First, I have screened for investment-grade S&P credit ratings of BBB- or above. Next, I have screened for low valuations based on P/E ratios between 2 and 17. Finally, I have screened for long-term debt to capital no greater than 70%.

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Disclosure: Long ABBV, AMGN, CELG, PFE at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a ...

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