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What are we looking for?

The health care industry is viewed as a defensive sector and as a hedge during market uncertainty. Today we look for quality U.S.-listed companies in that sector.

The screen

We screened the U.S. health care universe, including American depositary receipts, by focusing on the following criteria:

  • Positive three-month and 24-month change in the economic value-added (EVA) metric – a positive figure shows us that the company’s profits are increasing at a faster and greater pace than the costs of capital. The EVA is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses;
  • Economic performance index (EPI) – the ratio of return on capital to cost of capital – must be greater than one;
  • Average five-year return on capital (ROC) must be greater than 10 per cent and the 12-month change in return on capital must be positive;
  • Future growth value/market value (FGV/MV). This ratio represents the proportion of the market value of the company that is made up of future growth expectations rather than the actual profit generated. The higher the percentage, the higher the baked-in premium for expected growth and the higher the risk.

For informational purposes, we have also included recent stock price, dividend yield and one-year return (as of last month’s end). Please note that some ratios may be reported at end-of-previous quarter.

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More about Inovestor

Inovestor for Advisors is a research platform based on fundamental analysis specializing in the economic value-added (EVA) method. It helps advisers quickly identify attractive investment opportunities and easily communicate them to their clients through client-friendly reports and visuals. In addition, Inovestor allows investors to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts).

What we found

HCA Healthcare Inc., an operator of health care facilities, is trading at a small premium compared with most of the other companies on our list. HCA’s stock price has been on an impressive uptrend this year and has a one-year return of 69 per cent. An interesting fact is that the price surge is supported by solid fundamentals. HCA has been successful in adding value to shareholders at an excellent rate as shown by a 60-per-cent change in three-month EVA and 162-per-cent increase in 24-month EVA. In addition, the return on capital is now twice the cost of capital, as shown by the EPI. This is a great way to check for the sustainability of a stock rally: Focus on the economic profit a company is creating.

Pharmaceutical giants Abbvie Inc. and GlaxoSmithKline PLC are offering the highest dividend yields to investors. Comparing this year’s fundamentals (the 12-month return on capital change and the three-month EVA change), Abbvie Inc. has stronger figures. However, over the past 12 months, Abbvie’s stock price has struggled. This is owing to its high reliance on one blockbuster drug, Humira, which treats rheumatoid arthritis, Crohn’s disease and other chronic inflammatory conditions. Its market share has been threatened by highly similar drugs in Europe. On the other hand, most Humira sales come from the United States, where AbbVie has agreements to prevent “biosimilars” from entering the market until 2023.

Readers are advised to conduct further research before investing in any of the securities shown below.

Select U.S.-listed health care stocks

Company Ticker Market Cap (US$Mil) Recent Price (US$) 1Y return (%) Div. Yield (%) FGV/MV (%) Avg. 5Y ROC (%) ROC 12M Chg. (%) EPI EVA 3M Chg. (%) EVA 24M Chg. (%)
Abbvie Inc. ABBV-N 141,797.2 94.27 -2.7 3.8 37.3 17.9 2.0 1.6 58.6 100.2
GlaxoSmithKline PLC GLAXF-OTC 100,052.5 20.34 14.6 5.3 18.4 14.1 0.1 1.4 8.5 289.7
HCA Healthcare Inc. HCA-N 49,688.9 143.99 69.4 0.8 11.4 12.0 2.2 2.0 59.6 161.6
Illumina Inc. ILMN-Q 49,612.5 337.50 46.7 - 81.5 14.6 3.5 1.7 0.8 97.8
Zoetis Inc. ZTS-N 45,149.6 93.87 29.9 0.6 71.5 13.5 1.9 1.5 21.0 82.3
Regeneron Pharmaceuticals REGN-Q 39,567.0 365.65 1.0 - 79.3 14.6 1.5 1.2 54.1 43.9
Align Technology Inc. ALGN-Q 18,387.3 229.89 -11.9 - 88.0 16.6 0.9 1.6 9.5 63.8
Idexx Laboratories Inc. IDXX-Q 17,667.6 203.76 30.3 - 74.0 31.3 3.0 4.7 11.3 79.6
Abiomed Inc. ABMD-Q 14,983.4 332.68 70.7 - 91.2 15.2 5.5 2.3 13.4 84.9
Universal Health Services UHS-N 12,765.8 137.99 27.4 0.3 31.2 10.5 0.8 1.3 12.6 62.7
Quest Diagnostics Inc. DGX-N 12,045.5 88.57 -10.0 1.8 9.3 10.3 1.6 1.2 19.4 61.8
Jazz Pharmaceuticals PLC JAZZ-Q 9,120.6 151.20 8.2 - 19.6 15.8 0.7 1.5 3.3 56.7

Source: Inovestor for Advisors

Noor Hussain is an analyst and account executive for Inovestor Inc.

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