If you're looking to diversify your portfolio, health-care stocks may be just what the doctor ordered. From blue-chip, dividend-paying multinationals to high-risk/high-return smaller biotech firms, the health-care sector offers a little something for every investor.
Moreover, it doesn't hurt that the world's population is greying, with increased health-care spending predicted for the future.
Here are a few picks from investment professionals who follow the sector.
Stephen Caldwell, portfolio manager with Cidel Group, Toronto
Dentsply Sirona Inc.: The product of a recent merger between two giants, Dentsply Sirona is a major supplier of dental equipment and consumables such as artificial teeth. "Now that the merger has happened, there's a lot of scope to sell consumables to the existing base of customers," Mr. Caldwell says. The company's downside is a low dividend yield, less than 1 per cent, and it also has a forward, one-year price-to-earnings multiple of 22 times. "So the shares are not tremendously cheap," Mr. Caldwell says. But management earnings projections have been very conservative, and the figures "have the potential to turn out better than expected."
Olympus Corp. ADR: Known for manufacturing cameras, Olympus is also the largest manufacturer of endoscopes for gastroscopic procedures, with a 70-per-cent market share. But its growth potential is in the surgical space, where it has a 20-per-cent stake in the market. "The balance sheet is very strong, and the company is paying a dividend that should grow over time," Mr. Caldwell says. He also expects the company could see revenue growth as high as 6 per cent over the next five years. In addition, Olympus is trading at 19 times earnings, a historical low for the firm. The downside is currency risk as a Japan-based firm. "With the yen being very strong, that has put some downward pressure on reported results when dollar and euro revenues are translated back into yen." But the currency losses have had little impact on sales volume. Canadian investors can access its stock through the OTC (over the counter) market.
Doug Loe, sector analyst with Echelon Wealth Partners, Toronto
Theratechnologies Inc.: The Montreal-based drug developer's HIV medication Egrifta offers upside for investors. It addresses a particular problem in the treatment of the disease by targeting lipodystrophy, a dramatic loss of body fat. While the company has had trouble recently in developing the drug, Mr. Loe is optimistic about the company's prospects. "Theratechnologies is building out a leading HIV therapy franchise by focusing on niche HIV/AIDS markets previously not focused upon by peers."
TSO3 Inc.: This Quebec-based health-care technology firm has an innovative medical equipment sterilization platform that offers health-care providers more capacity to handle equipment such as flexible endoscopes at lower cost than competitors. It's awaiting FDA approval in the United States, so the company's competitive advantage is not guaranteed, but a favourable "review on this capability alone could establish VP4 as standard-of-care for hospital sterilization requirements worldwide," Mr. Loe says.
Eden Rahim, biotech portfolio manager with Next Edge Capital, Toronto
Acadia Pharmaceuticals Inc.: This U.S. biotech company is developing the only drug aimed at treating psychosis in patients with Parkinson's disease. "The only medication available right now is anti-psychotic drugs for treating schizophrenia and other mental illness, and they're ineffective," Mr. Rahim says. So far, Nuplazid has FDA approval and should be available to patients in the United States by the end of June. It can treat psychosis without the side effects of other medications, making it suitable for treating older patients in frail health. The downside is Acadia basically has "all its eggs in one basket," Mr. Rahim says, so if commercialization does not go as planned the company would face trouble. But given its proven effectiveness according the FDA, Mr. Rahim says the stock "is really underpriced."
Portola Pharmaceuticals Inc.: Portola is the maker of an agent that counteracts excessive bleeding in patients who take blood thinners. Developed for patients who cannot tolerate thinners without high risk for bleeding, Andexxa has a targeted market worth about $400-million a year because there is no other effective treatment for these patients. The risk is FDA approval, Mr. Rahim says. But the medical world needs "a coagulating agent like this badly on the market, so I think it's likely to get FDA approval."