In this article, we discuss the 10 healthcare stocks to buy according to Mario Gabelli.
Veteran investor Mario Gabelli is now almost 80-years-old with an incredibly long and successful career on Wall Street that spans more than four decades and is still ongoing. Gabelli chairs New York-based GAMCO Investors with over $11.7 billion in assets. The top ten holdings of the hedge fund comprise close to 14% of the portfolio. Most of the investments of GAMCO are concentrated in the industrial and consumer goods, services, and finance sectors. Gabelli has a personal net worth of close to $2 billion.
According to the latest securities filings, the portfolio value of GAMCO Investors increased by about $400 million between March and June this year. The fund made new purchases in 61 stocks, bought additional stakes in 245 equities, sold out of 62 stocks, and reduced holdings in 403 stocks during the second quarter. Gabelli, who has won several awards over the years that recognize his achievements as a money manager, pioneers a value investing strategy that places a focus on owning real assets.
Some of the top stocks in the investment portfolio of GAMCO Investors at the end of the second quarter of 2021 were The Walt Disney Company (NYSE: DIS), JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Company (NYSE: WFC), and Microsoft Corporation (NASDAQ: MSFT), among others. Over the years, the success of Gabelli has been an exception in the world of finance that has broadly struggled to deal with tech-related challenges. GAMCO Investors has meanwhile beaten the benchmark S&P 500 by 2 percentage points over three decades.
Our Methodology
With this context in mind, here is our list of the 10 healthcare stocks to buy according to Mario Gabelli. These were ranked according to the investment portfolio of GAMCO Investors at the end of the second quarter of 2021. The list was compiled according to the value of each holding in the GAMCO portfolio.
The analyst ratings of each company are also discussed to provide readers with some more context about their investment decisions. The hedge fund sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Why should be pay attention to Gabelli’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Healthcare Stocks to Buy According to Mario Gabelli
10. HCA Healthcare, Inc. (NYSE: HCA)
Number of Hedge Fund Holders: 60
HCA Healthcare, Inc. (NYSE: HCA) is placed tenth on our list of 10 healthcare stocks to buy according to Mario Gabelli. The firm provides healthcare services and is headquartered in Tennessee. According to the latest filings, GAMCO Investors owned 36,790 shares in the company at the end of the second quarter of 2021 worth $7 million, representing 0.06% of the portfolio.
On July 21, investment advisory Truist maintained a Buy rating on HCA Healthcare, Inc. stock and raised the price target to $290 from $260, noting that there was rebounding demand for the services offered by the firm.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $2.6 billion in HCA Healthcare, Inc., down from 62 the preceding quarter worth $3.2 billion.
Just like The Walt Disney Company, JPMorgan Chase & Co., Wells Fargo & Company, and Microsoft Corporation, HCA Healthcare, Inc. is one of the stocks in the portfolio of Mario Gabelli.
In its Q4 2020 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and HCA Healthcare, Inc. (NYSE: HCA) was one of them. Here is what the fund said:
“Since March we have increasingly tilted the long book towards stocks whose businesses will improve as the pandemic fades, a strategy we first discussed in our 1Q20 letter. Now that 2020 is — thankfully — over, let’s take a look back at some of our predictions from Q1.
HCA Healthcare (HCA) runs for-profit hospitals. In Q1, we said:
“We were shocked to see HCA initially trade down more than 50% in mid-March, in line with hotel companies and online travel agents. HCA will likely earn $11-12 in EPS when the COVID-19 crisis recedes, and we think the stock will trade back towards $150. Therefore, during Q1 we added we added ~80% to our shareholdings at an average price of roughly $90.”
If anything, this prediction was pessimistic. Despite the raging pandemic, 2020 revenue of $51.5b was actually up year-over-year. Earnings increased as well, with 2020 EPS of $10.93 and guidance of $12.10-13.10 in EPS for 2021. Said another way, in March HCA was trading for about 5 times 2021 earnings. We think that at $175 this stock is still cheap today and should trade at well over $200 per share.”
9. Pfizer Inc. (NYSE: PFE)
Number of Hedge Fund Holders: 67
Pfizer Inc. (NYSE: PFE) is ranked ninth on our list of 10 healthcare stocks to buy according to Mario Gabelli. The company makes and sells biopharmaceutical products and operates from New York. According to the latest data, GAMCO Investors owned 211,352 shares in the company at the end of June 2021 worth $8 million, representing 0.07% of the portfolio.
On August 18, investment advisory Cantor Fitzgerald maintained an Overweight rating on Pfizer Inc. stock and raised the price target to $61 from $53, noting that the product sales of the firm were continuing to exceed expectations.
At the end of the second quarter of 2021, 67 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Pfizer Inc., up from 65 in the preceding quarter worth $2 billion.
In addition to The Walt Disney Company, JPMorgan Chase & Co., Wells Fargo & Company, and Microsoft Corporation, Pfizer Inc. is one of the stocks favored by Mario Gabelli.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Pfizer Inc. (NYSE: PFE) was one of them. Here is what the fund said:
“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold Pfizer in late 2020, in the health care sector.”
8. Merck & Co., Inc. (NYSE: MRK)
Number of Hedge Fund Holders: 79
Merck & Co., Inc. is a New Jersey-based healthcare company. It is placed eighth on our list of 10 healthcare stocks to buy according to Mario Gabelli. Securities filings show that GAMCO Investors owned 188,821 shares in the company at the end of the second quarter of 2021 worth $14 million, representing 0.12% of the portfolio.
On July 26, investment advisory Truist assumed coverage of Merck & Co., Inc. stock with a Buy rating and a price target of $92, noting that the stock could trade at 15-times the expected earnings per share by the next fiscal year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Merck & Co., Inc. with 10.3 million shares worth more than $802 million.
Along with The Walt Disney Company, JPMorgan Chase & Co., Wells Fargo & Company, and Microsoft Corporation, Merck & Co., Inc. is one of the best stocks in the portfolio of Mario Gabelli.
In its Q1 2021 investor letter, Artisan Partners highlighted a few stocks and Merck & Co., Inc. (NYSE: MRK) was one of them. Here is what the fund said:
“In Q1, we initiated a position in Merck, a provider of health care solutions including prescription medicines, vaccines, biologic therapies, animal health and consumer care products. We purchased Merck when the stock came under pressure in part on concerns that the newly minted Biden administration could implement regulatory changes and lower drug costs in the pharmaceutical industry. Recent, but anticipated changes to Merck’s management team have also weighed on shares, as have concerns over the company’s heavy reliance on immunotherapy treatment Keytruda. Notably, Merck is not getting much credit from investors for the 60+ programs it has in clinical development, despite having several solid and large new product opportunities. Additionally, the company’s strong balance sheet and robust free cash flow provide it multiple options for future partnerships and acquisitions. While Merck is undergoing a period of transition, we think the company’s fundamentals are strong and believe changes to management should be a catalyst for improvement.”
7. Johnson & Johnson (NYSE: JNJ)
Number of Hedge Fund Holders: 88
Johnson & Johnson is a New Jersey-based company that makes and sells several health-related products. It is ranked seventh on our list of 10 healthcare stocks to buy according to Mario Gabelli. 13F filings show that GAMCO Investors owned 105,103 shares in the company at the end of the second quarter of 2021 worth $17 million, representing 0.14% of the portfolio.
On May 28, investment advisory Morgan Stanley assumed coverage of Johnson & Johnson stock with an Overweight rating and a price target of $187, noting that the advisory expected strong performance from all the three business segments the firm operated in.
At the end of the second quarter of 2021, 88 hedge funds in the database of Insider Monkey held stakes worth $7 billion in Johnson & Johnson, up from 81 in the previous quarter worth $6.9 billion.
The Walt Disney Company, JPMorgan Chase & Co., Wells Fargo & Company, and Microsoft Corporation are some of stocks that Mario Gabelli favors, just like Johnson & Johnson.
6. Bio-Rad Laboratories, Inc. (NYSE: BIO)
Number of Hedge Fund Holders: 41
Bio-Rad Laboratories, Inc. (NYSE: BIO) is placed sixth on our list of 10 healthcare stocks to buy according to Mario Gabelli. The company markets life science research services and is headquartered in California. Latest data reveals that GAMCO Investors owned 27,690 shares in the company at the end of June 2021 worth $17 million, representing 0.15% of the portfolio.
In February, investment advisory Citi maintained a Buy rating on Bio-Rad Laboratories, Inc. stock and raised the price target to $750 from $675, noting the significant earnings beat of the firm in the quarterly results posted earlier.
At the end of the second quarter of 2021, 41 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Bio-Rad Laboratories, Inc., down from 44 in the previous quarter worth $890 million.
The Walt Disney Company, JPMorgan Chase & Co., Wells Fargo & Company, and Microsoft Corporation are some of the best stocks according to Mario Gabelli, in addition to Bio-Rad Laboratories, Inc..
5. Zoetis Inc. (NYSE: ZTS)
Number of Hedge Fund Holders: 58
Zoetis Inc. (NYSE: ZTS) is ranked fifth on our list of 10 healthcare stocks to buy according to Mario Gabelli. The company makes and sells animal medicines and is headquartered in New Jersey. Latest filings reveal that GAMCO Investors owned 105,050 shares in the company at the end of the second quarter of 2021 worth $19 million, representing 0.16% of the portfolio.
On August 25, investment advisory Argus maintained a Buy rating on Zoetis Inc. stock and raised the price target to $225 from $195, noting the upgrade reflected the improved outlook on the firm following solid quarterly results posted earlier.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Marshall Wace LLP is a leading shareholder in Zoetis Inc. with 951,285 shares worth more than $177 million.
In its Q2 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Zoetis Inc. (NYSE: ZTS) was one of them. Here is what the fund said:
“As is usually the case, Portfolio turnover was modest during the quarter. We trimmed Zoetis. The Zoetis trim is simply an acknowledgement of the company’s current valuation, which we assess is elevated.”
4. Thermo Fisher Scientific Inc. (NYSE: TMO)
Number of Hedge Fund Holders: 87
Thermo Fisher Scientific Inc. (NYSE: TMO) is a Waltham-based firm that markets life sciences and specialty diagnostics services. It is placed fourth on our list of 10 healthcare stocks to buy according to Mario Gabelli. 13F filings show that GAMCO Investors owned 42,870 shares in the company at the end of June 2021 worth $21 million, representing 0.18% of the portfolio.
On August 4, investment advisory Credit Suisse assumed coverage of Thermo Fisher Scientific Inc. stock with an Outperform rating and a price target of $580. Katie Tryhane, an analyst at the advisory, issued the ratings update.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $7.3 billion in Thermo Fisher Scientific Inc., up from 79 in the preceding quarter worth $6.2 billion.
In its Q2 2021 investor letter, DEVON Equity Management, an asset management firm, highlighted a few stocks and Thermo Fisher Scientific Inc. (NYSE: TMO) was one of them. Here is what the fund said:
“The broad response to the COVID pandemic from the healthcare, pharmaceutical, and life science industries has been nothing short of incredible.
Whilst Vaccine makers understandably garner the highest profile, Thermo Fisher (6.2% of NAV) should be considered one of the outstanding performers, reflected in their ‘COVID related revenue’ hitting US$9.4bn in the 12 months since March 2020 (we appreciate measuring ‘contribution’ to the pandemic by ‘dollars’ generated is a little crude – but ultimately it does tell us something).
Ever the short-termist, Mr Market has looked to the inevitable slowdown in COVID related revenue uneasily – questioning whether it might mean a decline in Earnings come 2022. These concerns resulted in TMO shares declining 5% since their November 2020 peak, the worst performer of our Top 10 holdings.
Fortunately, we look at the COVID dynamic for Thermo in the diametrically opposite fashion.
We think Thermo’s response to COVID has bolstered their competitive positon in multiple verticals, and meaningfully enhanced the long term earnings potential of the company:
Firstly, Thermo came from ‘also-ran’ to leading player in diagnostic testing in 6 months. In ordinary times, this might be expected to take 5+ years. As demand for COVID testing inevitably declines, the capacity Thermo built during 2020 will be filled with demand from non-COVID diagnostic tests, a fast growing area before the pandemic with improved prospects in light of the role testing is playing in the COVID response.
Secondly, Thermo invested heavily throughout 2020 in capacity for the core bioreactor business. Given our constructive view on biologics manufacturing (both volume and value), these investments should translate into sustainably higher market share.
Thirdly, we expect the ~US$4bn of ‘excess’ free cash flow generated from COVID related business to be reinvested into high returning businesses with a more sustainable earnings profile. This is already evident in Thermo’s strong M&A activity YTD, culminating in the US$20bn acquisition of PPD (PPD US).
PPD is a top tier CRO (Contract Research Organisation) which has been in and out of private equity ownership in recent times. To oversimplify, CRO’s effectively provide ‘outsourced’ R&D services across the entire customer spectrum (from big pharma to early stage biotech). Their value proposition varies slightly be customer, but ultimately comes down to quality of drug discovery / development and accelerating time to market (i.e. ‘Return on R&D investment’). CROs must stack up well on this metric vs in-house R&D spend, otherwise Firms would simply keep the spend 100% internal.
In the past Marc Casper (Thermo’s CEO) has been publically sceptical of moving into the CRO market – the simple logic being the creation of an integrated CRO/CDMO6 would bring Thermo into more direct competition with some of their large customers. However the acceleration in R&D spending from big pharma and explosion of innovative R&D activity in well-funded earlier stage Biotechs has driven a boom in the CRO market. COVID and the therapeutic / vaccine responses has added a further leg to the story, and the value proposition of top tier CRO’s has never been stronger.
From a regulatory perspective, one might also point to the relative ease for Thermo to execute a US$20bn CRO acquisition given this is essentially a ‘vertical’ rather than ‘horizontal’ move. Since Thermo are Top 3 in the majority of their segments, any further consolidation of direct competitors in an existing business of comparable size to PPD could prove problematic. Though PPD is ‘vertical’ – we can clearly see synergies with Thermo’s existing businesses, especially in CDMO and clinical trial drug provision / services. The targeted synergies announced in April feel highly conservative, and combined with the obvious potential for accelerated top line performance at PPD once in the Thermo stable, we expect the deal to prove far more accretive on a 3-5 year view than the ~8% earnings accretion based on publicly stated 2022 targets.
Thermo Fisher (and Danaher) have built highly successful multi-brand life science conglomerates, with M&A a critical driver of success. Our confidence in Thermo’s management team to reinvest a large portion of free cash flow into M&A at high rates of return is a key facet of our investment thesis. Done well, inorganic growth can be disproportionately accretive since consensus expectations rarely capture acquisitions as a source of future earnings (even in a demonstrably acquisitive business model such as this).
We established Thermo as a Top 5 position at the Fund’s inception to reflect the company’s strong positioning across a number of attractive life science verticals, with Biopharma and Clinical representing ~70% of end market exposure. We are also attracted to a business model delivering strong and consistent free cash flow generation underpinned by over 50% of revenue derived from consumables.
Given the Fund’s largest position (IQVIA) is a major competitor to PPD, it should come as no surprise we are excited at the prospect of Thermo’s move into the CRO market – in our view one of the most attractive areas of healthcare. Thinking about possible implications for IQVIA, we are not overly concerned about market share loss over the medium term. The CRO market remains fragmented, and we think IQVIA (standalone) and PPD (under Thermo ownership) represent two of the top tier players who are likely to gain market share from second and third tier players.
Thermo Fisher trades on 22x Forward Earnings with a Free Cash Flow Yield in excess of 4%: cheap vs its own history, closest comp Danaher, and the broader life science tools sector. We are comfortable with the possibility of a modest earnings decline in 2022 – to us it would be a reflection of the extent of their successful response to COVID. Recent developments give us increased confidence in the five year earnings and free cash flow prospects for the company. “
3. CVS Health Corporation (NYSE: CVS)
Number of Hedge Fund Holders: 67
CVS Health Corporation (NYSE: CVS) is a Rhode Island-based company that provides healthcare services. It is ranked third on our list of 10 healthcare stocks to buy according to Mario Gabelli. Securities filings show that GAMCO Investors owned 267,131 shares in the company at the end of the second quarter of 2021 worth $22 million, representing 0.18% of the portfolio.
On August 31, investment advisory CVS Health Corporation kept an Overweight rating on CVS Health Corporation stock and raised the price target to $114 from $99, noting that the firm was a top pick for the rest of the year.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based firm Harris Associates is a leading shareholder in CVS Health Corporation with 8.5 million shares worth more than $713 million.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and CVS Health Corporation (NYSE: CVS) was one of them. Here is what the fund said:
“We sold our position in CVS Health Corp. to allocate capital to companies with larger margins of safety. During the five years that we owned CVS Health Corp., the company acquired Aetna. At the time, we also owned Aetna, and we believed the combination of the two companies would create additional value. After the acquisition, its business performance has been disappointing. We reevaluated our assumptions and determined its value has not grown.”
2. Bausch Health Companies Inc. (NYSE: BHC)
Number of Hedge Fund Holders: 45
Bausch Health Companies Inc. (NYSE: BHC) is placed second on our list of 10 healthcare stocks to buy according to Mario Gabelli. The company markets pharmaceutical products and is headquartered in Canada. According to the latest data, GAMCO Investors owned 815,133 shares in the company at the end of June 2021 worth $23 million, representing 0.20% of the portfolio.
On August 4, investment advisory Barclays kept an Overweight rating on Bausch Health Companies Inc. stock but lowered the price target to $31 from $35. Balaji Prasad, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 45 hedge funds in the database of Insider Monkey held stakes worth $3.9 billion in Bausch Health Companies Inc., up from 42 in the preceding quarter worth $4 billion.
In its Q1 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Bausch Health Companies Inc. (NYSE: BHC) was one of them. Here is what the fund said:
“Bausch Health Companies (BHC) climbed 55% during the period. Glenview (6% owner) sent a letter to the company in early February arguing the company has not acted to unlock shareholder value and urging the company to sell its eye care business. Shortly after, activist investor Carl Icahn disclosing a 7.83% stake in the company. The company responded to the filing saying that they remain committed to splitting the business into two parts, but are open to pursuing all opportunities. The company reported strong 4Q results with better-than-expected 2021 guidance. 4Q revenue came in at $2,213M slightly ahead of consensus of $2,165M and EPS of $1.34 beat consensus of $1.12. The company guided for 2021 revenue of $8.6-8.8B coming in ahead of expectations of $8.55B with EBITDA of $3.4-3.55B ahead of $3.46B estimated. The company announced the transition of Paul Herendeen to an advisory role to be succeeded by Sam Eldessouky, previously senior vice president, controller and chief accounting officer. Finally, the company announced the sale of Amoun Pharmaceutical for $740M, which was relatively in line with estimates and should help support debt reduction targets ahead of the planned spin-off of Bausch + Lomb eye care business.”
1. Teladoc Health, Inc. (NYSE: TDOC)
Number of Hedge Fund Holders: 43
Teladoc Health, Inc. (NYSE: TDOC) is ranked first on our list of 10 healthcare stocks to buy according to Mario Gabelli. The company markets virtual healthcare services and is headquartered in New York. According to the latest filings, GAMCO Investors owned 162,400 shares in the company at the end of the second quarter of 2021 worth $27 million, representing 0.22% of the portfolio.
On August 9. Investment advisory Cowen maintained an Outperform rating on Teladoc Health, Inc. stock but lowered the price target to $188 from $240, noting that there were limited near-term catalysts for the shares.
At the end of the second quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Teladoc Health, Inc., up from 42 in the previous quarter worth $3.3 billion.
In its Q4 2020 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and Teladoc Health, Inc. (NYSE: TDOC) was one of them. Here is what the fund said:
“Teladoc Health offers remote physician access to patients at home. After experiencing incredible levels of growth throughout the early stages of the pandemic as its unique value proposition rose to the forefront of the healthcare industry, the firm’s shares cooled off a bit as optimistic vaccine data slightly curtailed investor expectations for the firm’s future growth potential. We sold the stock.”
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This article is originally published at Insider Monkey.
