Healthcare stocks have badly lagged the overall stock market so far this year, with the S&P 500 Health Care index sliding 2.78%, compared to a 17% jump for the overall S&P 500.
“This is good news for investors looking for long-term opportunities in the healthcare sector, as many high-quality healthcare stocks are still trading at undervalued prices,” according to a Morningstar commentary.
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The research firm put together a list of the eight most undervalued healthcare stocks of those companies which earn its wide moat rating.
Undervaluation is based on Morningstar’s fair value estimates. And a wide moat means Morningstar sees the company with competitive advantages that will last for at least 20 years.
Here are the elite eight, starting with the most undervalued as of July 28.
Tech, Big Pharma and Biotech
Morningstar fair value estimate: $275. Friday’s closing price: $197.
Veeva is the “leading” company among its peers, wrote Morningstar analyst Keonhee Kim. “It provides an ecosystem of products to address the operating challenges and regulatory requirements that companies in the [biotech] space face.”
Further, “we see Veeva showing its resilience by adding new customers in many of its applications,” Kim said.
Morningstar fair value estimate: $48. Friday’s closing price: $35.
“Pfizer reported mixed second-quarter results that fell below our projections, but we don’t expect a major change to the firm’s fair-value estimate,” wrote Morningstar analyst Damien Conover.
One plus for Pfizer: the lower-than-expected sales from covid drugs could still rebound later in the year, he said.
Morningstar fair value estimate: $327. Friday’s closing price: $269.
“We think Biogen’s specialty-market-focused drug portfolio and novel, neurology-focused pipeline create the wide moat,” wrote Morningstar analyst Karen Andersen.
“Biogen is expanding its neurology portfolio beyond multiple sclerosis, including blockbuster neuromuscular-disease drug Spinraza and the drug Leqembi for Alzheimer’s disease.”
Morningstar fair value: $97. Friday’s closing price: $78.70.
Gilead had a “strong second quarter that displayed the firm’s continued ability to gain share in the HIV market with Biktarvy,” wrote Morningstar analyst Karen Andersen.
Second-quarter earnings also showed the company has “potential to grow the relatively new oncology business into a key pillar of its wide moat,” she said.
Healthcare Devices and Supplies
Here are the final four on the list, representing healthcare devices, supplies and tools.
Morningstar fair value: $112. Friday’s closing price: $84.
Morningstar fair value: $175. Friday’s closing price: $126.30.
Morningstar fair value: $151. Friday’s closing price: $126.30.
Morningstar fair value: $323. Friday’s closing price: $290.
The author of this story owns shares of Pfizer and Medtronic.