2 Healthcare Investment Picks - Valeant and Novo Nordisk
Health care reform's passage by the U.S. Congress put the issue of health and wellness at the front of American minds this year. The truth is, though, even if the bill hadn't passed our aging demographics and rising obesity rates would have made health care a growth industry.
Now that the bill is law, the U.S. government will spend an additional $1 trillion on health care. Big Pharma companies haven't wasted a second trying to edge out competitors in getting a piece of this pie. They have spent more than $150 million in advertising to promote health care reform in some form or another knowing full well that as the number of insured increases so do their profits.
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That's because health care is expensive. If you or a loved one has ever been sick, I don't need to tell you that. The big costs usually come from testing and medical procedures, not drugs, however. Diagnosing problems with invasive surgeries or other labor-intensive methods requiring hospital stays are incredibly costly and can bankrupt families. If a doctor is able to prescribe a pill, however, costs of care go down significantly, as the patient can take care of himself at home. The doctor is also able to see many more patients. The increased use of drugs seems to be a win-win.
And as more doctors and patients adopt pharmaceutical treatments, drug companies will make even more money.
As with every investment, there will be winners and losers. Those drug companies with the right pills at the right time will obviously benefit most. Here's where I think you should start your buying, though:
Novo Nordisk A/S ( NVO ) is an excellently run large pharmaceutical manufacturer. It is one of the world's leading producers of insulin, which is used to treat diabetes. And as populations around the world continue to gain weight, diabetes rates are skyrocketing-sadly-even among children. According to a recent study reported in HealthDay News , if current trends continue, cases of type 1 diabetes among European children younger than 15 will increase 70% by 2020.
This company also makes insulin injection devices and diabetes education materials. Its products include Levemir and NovoLog (which mimic natural insulin regulation more closely than human insulin) and FlexPen, a pre-filled insulin injection tool. In addition to the company's diabetes drugs, Nova Nordisk also has products in the areas of blood clotting management, human growth hormone regimens and hormone replacement therapies.
The company's first-quarter net income rose 23% to $593 million. Its sales rose 9% to $2.47 billion. Looking forward, Novo Nordisk expects year-end sales growth of between 7% and 10%, which is up from its previous guidance of between 6% and 10%. For 2010, the company is expecting conservative growth in its operating earnings in excess of 10%. However, the analyst community is much more optimistic and is expecting its 2010 earnings to rise 20.2%.
NVO is one of my favorite drug stocks right now. I am recommending this stock to paid subscribers of my newsletter.
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In the small-cap realm, I like Valeant Pharmaceuticals International ( VRX ). This company is also one that I'm recommending to my paid newsletter readers.
VRX is relentless when it comes to making you look and feel good. They are dedicated to bringing the newest and best products to the market, even if it means buying other pharmaceutical companies to do so. VRX makes approximately 390 prescription and over-the-counter ( OTC ) drugs in the areas of neurology and dermatology. Valeant's drugs include: Efudix, for skin cancer; Mestinon, for severe muscle weakness; and Diastat, for epilepsy.
In early May, the company said its earnings per share ( EPS ) were $0.64, beating analysts' estimates of $0.56 by 14%! The company's revenue also increased 30% from $177.9 million to $232 million. The company additionally revised its 2010 year-end guidance upward to between $2.65 and $2.90 EPS.
Drugs are where the money will be made this summer and into the future. That's why I'm recommending that you buy these established companies with strong product lines and manufacturing capabilities.
As stated, Louis Navellier was recommending both of these pharma picks in his investment newsletters to paid subscribers.