Health care stocks have soared in 2013. Does that mean that there aren’t good bargains still to be found for value investing fans? Not at all. Several stocks in the sector look to be priced quite attractively. Here are three health-care value investing plays that show decent long-term potential.
1. Put a little jazz in your portfolio
There are plenty of things about Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) that should put a little bounce in your step. The company’s latest quarter saw revenue growth of 91% year-over-year. Adjusted earnings were up 63%. On top of those stellar results, Jazz announced a $200 million share buyback.
With such sizzling performance, you might expect Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) to be priced highly — but it’s not. The stock has a trailing price-to-earnings multiple of less than 12. Its forward P/E ratio of less than 8 looks even better. What’s more, analysts project earnings growth of 22% over the next year. Sounds like a value investing dream scenario, right?
The problem is that some think Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ)’s future could be more of a nightmare. The company derives 60% of its revenue from narcolepsy drug Xyrem. While the first patents on Xyrem don’t expire until 2019, Jazz faces litigation with two companies that want to market generic versions of the drug. Recent comments from Jazz CEO Bruce Cozadd fueled concerns that a generic product could come sooner rather than later. I suspect that these worries are overblown and have helped makeJazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) an even more attractive bargain.
2. Indications could be good
Questcor Pharmaceuticals Inc (NASDAQ:QCOR) ranks as one of the more topsy-turvy stocks around. Shares soar and sink regularly on nearly any type of news.
You won’t find too many cheaper stocks in health care, though. Questcor Pharmaceuticals Inc (NASDAQ:QCOR)’s trailing P/E of 12 and forward P/E multiple of 8 certainly look intriguing. Throw in a return on equity over 92% and a dividend yield of 2.7% to that intriguing proposition, too.
What’s the catch? Some say that it’s only a matter of time before sales of Questcor Pharmaceuticals Inc (NASDAQ:QCOR)’s Acthar gel implode. Skeptics think that the drug is too expensive and isn’t proven to be effective for many of the indications for which it is used. There are plenty of these naysayers: Questcor’s short interest stands at nearly 60%.
The company continues to aggressively market Acthar for additional indications with a big push under way now for rheumatology indications. Shipments dipped a bit in the first quarter, but Questcor Pharmaceuticals Inc (NASDAQ:QCOR) says that the second quarter started out strongly. My view is that if the company announces positive results three months from now, the stock could be a good one to scoop up.
3. On the mend
Select Medical Holdings Corporation (NYSE:SEM) seems to have everything going against it these days. The specialty hospital and outpatient rehab center operator reported dismal first-quarter results. It gave lackluster guidance for the full year. And short-sellers are smacking their lips — with a 65% increase in shares sold short in the last two weeks of April.