Healthcare investors’ attention in recent weeks has been riveted on the priciest stocks in the sector:
with its heart-stopping market value of $412 billion—the most ever for a pure-play biopharma company—and
not far behind with a $377 billion market value.
For investors looking for value, it might all be a bit too rich.
In an effort to seek value plays in the healthcare sector, we screened the
for the healthcare stocks trading at the lowest multiple of earnings per share expected over the next 12 months.
The stocks we found are cheap, relative to highfliers like Lilly (ticker: LLY), and many are cheap for a reason. But the list provides a starting place for investors looking for deals.
All the focus this spring has been on the most expensive names in the sector. Excitement over Lilly and Novo’s (NVO) dueling obesity drugs—plus positive data on Lilly’s Alzheimer’s drug—has sent Lilly’s share price to many multiples of its expected earnings. Lilly is trading at 44 times earnings expected over the next 12 months, according to FactSet.
Our screen focused on the other end of the spectrum, looking at S&P 500 healthcare stocks trading at the lowest multiple of their forward earnings per share. The results include the generic drugmaker
(VTRS), trading at 3.2 times earnings; the recent
(OGN), which focuses on women’s health and biosimilars, and trades at 4.8 times earnings; and the health insurance giant
(GI), which trades at 9.9 times earnings.
Other stocks on the list include the health insurer
(CNC), at 10.3 times earnings, and the drugmakers
|Company / Ticker||Recent price||Market value (bil)||P/E (NTM)|
|Viatris / VTRS||$9.40||$11.20||3.2|
|Organon & Co. / OGN||20.80||5.30||4.8|
|Bristol Myers Squibb / BMY||68.20||143.20||8.4|
|Cigna Group / CI||258.00||76.30||9.9|
|Centene / CNC||67.20||36.90||10.3|
|Pfizer / PFE||37.20||209.80||11|
|Gilead Sciences / GILD||78.40||97.80||11.3|
|Amgen / AMGN||233.50||124.80||12.6|
|Laboratory Corporation of America Holdings / LH||222.90||19.70||12.7|
the low valuation reflects what Piper Sandler analyst David Amsellem called “murky visibility into the [long term] business mix.” The company, which was formed in 2020 as a combination of the generic drugmaker Mylan and a
unit called Upjohn, is in the midst reorganizing its business, and is planning a string of divestitures.
As for some of the drugmakers, notably Pfizer, the lower multiple reflects lingering investor uncertainty over coming patent cliffs, as a number of important products begin to face generic and biosimilar competition. Pfizer says it expects to lose $17 billion in annual revenue when its patent cliff hits at the end of this decade, but that it will more than make up for that loss with new products. Investors don’t seem to be fully convinced yet, given the stock’s valuation.
Bristol Myers Squibb
(BMY), which also made the list, is also among the pharma companies that faces a major patent cliff toward the end of the decade. The company could see the sources of 70% of its 2021 revenue go off patent by 2030, according to Jefferies analyst Akash Tewari. “Ultimately it will take bold M&A (BMY DOES have capacity to do a large deal) & likely some tough cost cuts for us to see upside in this story,” Tewari wrote in a note in April.
Bristol Myers Squibb
also has a leadership transition ahead: Its current chief commercial officer, Chris Boerner, will succeed Giovanni Caforio as CEO later this year.
Investors looking for deals should pay close attention to these cheap healthcare stocks. Sometimes cheap does just mean cheap. But there may be value hiding in some of these out-of-favor names.
Write to Josh Nathan-Kazis at [email protected]