Since I haven’t been living under a rock for the past 18 months I know, like many other investors out there right now, that there is currently a massive spotlight on the health industry – and naturally so, seeing as the proposed exit from the current situation is through vaccines made by so-called “big pharma” companies. But outside the major players, there’s a plethora of potential long-term value plays – I’m talking an investment horizon of least a year (but ideally a minimum of three to five years, as per The Motley Fool’s investing ethos) – with a market capitalisation of less than $10 billion. Here’s a list of some lesser-known American health stocks that I believe are currently trading at less than their worth and could provide great opportunity for value over the long term. The current appeal of some of the large-cap health stocks means that the following stocks may be overlooked today but, due to their strong overall fundamentals, may prove a worthwhile investment for me tomorrow.
First up is Pacira BioSciences. This drug maker produced a stellar second quarter where total revenues surged 9.6% to $135.6 million compared to the first quarter of 2021, but the market has failed to acknowledge this with a 13.22% drop in the price of the stock as recently as yesterday as rival eVenus sought authorisation to produce one of Pacira’s patented drugs, Exparel. That being said, I’m still bullish on this stock, not only because of its commitment to non-opioid medication, which I believe presents a unique selling point but its conservative use of debt on its balance sheet, growing net income and free cash flows.
Community Health Systems makes a strong case based on its current fundamentals and previous earnings. Amongst the biggest institutional investors in this health stock are funds you might recognise such as Blackrock and Vanguard and as if that wasn’t enough, this stock is up 158% year to date. You’d think such a spike would mean the stock is overpriced at the moment but its current price-to-earnings (P/E) ratio of 4.2 (compared with the healthcare industry average of 21.8) means there’s still so much value on the table and so much potential upside. At the current market price of $12.30 per share, it’s a winner in my books.
Next up is Innoviva, a pharmaceuticals royalty management company that is also a favourite amongst institutional investors like Blackrock. Not only is it trending upward with a year to date 68% growth in share price, this company has seen an upward trajectory in revenues and net income, as well as free cash flow, even through the pandemic. Its current P/E ratio of 7.05 indicates good value and its conservative use of debt is also a huge positive.
Finally, I have Supernus Pharmaceuticals, a biopharmaceutical company that currently has a P/E ratio of 14.1 and a price-to-book (P/B) ratio of 1.8. Whilst Supernus is currently liquid and comfortably so, as a value-oriented investor the amount on debt its balance sheet is uncomfortably high for me. Nonetheless, it is trading at a significant discount, has shown consistent growth in its bottom line over the past few years and continues to grow in other key fundamentals such as free cash flows. It’s upward trajectory in price over the past year indicates that the market will eventually recognise the value here and at the current price of $26, it’s kinder to the pocket than many large-cap health stocks.
Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.