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All Contents © 2020The Kiplinger Washington Editors
By Daren Fonda, Senior Associate Editor
| October 6, 2016
When it comes to stocks, we like playing the long game: picking solid companies, sticking with them through tough times and hanging on for years, even a decade or more. Investing for the long haul can smooth out the risks of buying individual stocks, which may tumble or stay depressed for ages before taking off.
The following three health-focused companies possess attractive long-range prospects: Each should be able to expand its sales and profits at rates well above the market average for years. (Read 10 Great Stocks for the Next 10 Years to learn about seven more picks outside the health sector.)
Investing for the next decade doesn’t mean you can buy these stocks then forget about them. You’ll need to follow them closely and may have to sell if cracks emerge in the business. Still, if these health companies can keep building on their recent successes, they have a good shot at delivering superb returns over the long run.
Stocks are listed alphabetically. Share prices and other data are as of September 14. Price-earnings ratios are based on estimated year-ahead earnings
Share price: $106.06
Market capitalization: $82.2 billion
52-week high/low: $93.05 - $128.39
Estimated 2016 earnings per share: $5.71
Estimated 2017 earnings per share: $6.99
Price-earnings ratio: 17
Dividend yield: none
The business: Celgene makes the cancer-fighting drug Revlimid and other biotech medicines.
What will drive growth: Boosted by Revlimid—a drug that modifies the body’s immune system to fight cancer—Celgene aims to hit $21 billion in sales in 2020, up from an estimated $11.1 billion in 2016. Initially approved in 2006 as a second-line defense against multiple myeloma, a common type of blood cancer, the drug won approval in 2015 for patients newly diagnosed with the disease, expanding its sales and market potential. Revlimid has also been approved for other uses, and Celgene is now testing it to combat some types of lymphoma and leukemia. Other products in Celgene’s lineup include medicines to treat advanced breast cancer and psoriasis. In addition, Celgene expects results in the next few years from more than a dozen late-stage drug trials—a pipeline of potentially new and expanded-use products that looks “underappreciated,” says Bank of America Merrill Lynch.
The stock: Celgene’s P/E has tumbled from 59 times earnings in 2014 to 17 times estimated year-ahead profits. The stock also slid, down 13% in the past year, due to concerns about unsustainably high drug prices and disappointing results in some of Celgene’s clinical trials. Still, the shares now look cheap relative to expected earnings growth, estimated at 23% in 2017 and 24% in 2018.
See Also: 7 Battered Biotech Stocks to Buy
Share price: $76.45
Market capitalization: $52.8 billion
52-week high/low: $61.60 - $82.64
Estimated 2016 earnings per share: $3.56
Estimated 2017 earnings per share: $3.90
Price-earnings ratio: 21
Dividend yield: 0.8%
The business: Danaher owns 29 businesses, primarily involved in life sciences, dental care, and medical diagnostics.
What will drive growth: A perpetual dealmaker, Danaher has bought and sold more than 400 companies since 1984. It now aims to focus on fast-growing products in health care and life sciences. The firm recently spun off a big chunk of its industrial businesses into a separately traded company, Fortive (FTV), and announced plans to buy medical diagnostics company Cepheid for $4 billion. That follows up on a 2015 deal to buy medical toolmaker Pall for $13.8 billion. The risk with Danaher is that it could overpay for growth. But its freewheeling ways have paid off: Over the past 15 years through September 14, Danaher’s shares returned 14.3% annualized, more than double the 6.7% annualized gain of Standard & Poor’s 500-stock index (both figures include dividends).
The stock: Analysts see sales climbing 4% to 5% annually over the next two years, hitting $18.3 billion in 2018. Profits should climb faster, though, as Danaher shaves costs and improves the bottom line at companies it buys. Wall Street expects earnings to climb at a 10% annual pace over the next two years.
See Also: 12 Stocks to Get Dividends Every Month
Share price: $108.57
Market capitalization: $9.7 billion
52-week high/low: $115.06 - $63.08
Estimated 2016 earnings per share: $2.36
Estimated 2017 earnings per share: $2.68
Price-earnings ratio: 41
Dividend yield: none
The business: Idexx sells animal-health diagnostic tools and veterinary hospital instruments. The firm also runs diagnostic labs and tests municipal water systems for contaminants.
What will drive growth: A leader in “dog’nostics,” Idexx is benefiting from robust spending on veterinary care, which is climbing at about 9% per year in the U.S. With a broadening menu of disposable tests and diagnostic equipment, the firm expects to boost revenues by more than 10% a year and sees profits expanding at a 15% to 20% annualized rate over the next few years. Idexx is also seeking more sales abroad, expanding its livestock diagnostics business in Europe and acquiring a distributor in Brazil.
The stock: On a P/E basis, Idexx is one of the most expensive stocks on our list, trading at 41 times estimated year-ahead profits. Credit Suisse, which rates Idexx a “buy,” sees the shares climbing only to $122 over the next year. But stick with the stock for the long haul, Credit Suisse advises. Idexx is building a “comprehensive, innovative product line” that should fuel double-digit percentage sales growth for years.
See Also: 8 Risky Stocks That Could Make You Rich One Day