With the market trading near all-time highs, undervalued healthcare stocks offer a compelling opportunity. Fundamentally, the sector could benefit from a rotation in the innovation ecosystem.
As a Reuters report mentioned recently, publicly traded technology enterprises witnessed a huge outflow of $4.4 billion. In fact, it was the largest-ever outflow of funds over a single week. It’s not hard to understand why. As artificial intelligence and other technologies boosted share prices, it makes sense to secure profits ahead of a possible correction.
At the same time, it’s possible that certain underappreciated sectors could see inflows. With that, the below undervalued healthcare stocks present attractive upside prospects.
Patterson Companies (PDCO)
Falling under the medical distribution segment of undervalued healthcare stocks, Patterson Companies (NASDAQ:PDCO) engages in the distribution of dental and animal health products in the U.S., U.K. and Canada. Per its public profile, the company operates through three segments: Dental, Animal Health and Corporate.
While it’s a relevant enterprise, its financial performances last year have been all over the map. For example, in the first quarter, Patterson posted earnings per share of 84 cents, handily beating the estimate targeting 70 cents. However, it missed the EPS targets for the back half of 2023, yielding a negative earnings surprise of 7.75%.
For fiscal 2024, expectations are somewhat muted, with experts calling for EPS of $2.32 on sales of $6.56 billion. Last year, the metrics were $2.42 on sales of $6.47 billion. However, the robust performance of the U.S. pet products and services industry could help lift PDCO.
Currently, shares are only trade at a forward earnings multiple of 10.84X, below the sector median 15.8X.
Bristol-Myers Squibb (BMY)
Falling under the drug manufacturing segment of undervalued healthcare stocks, Bristol-Myers Squibb (NYSE:BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. Per its corporate profile, BMY offers products for hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases. One of its main drugs is Opdivo for various anti-cancer indications.
Overall, BMY has been a reliable source of operational performance for stakeholders. Last year, the one glaring miss came in Q2. Back then, the company forwarded EPS of $1.75. However, Wall Street was anticipating earnings of $1.98 per share. Still, inclusive of the Q2 miss, the overall positive earnings surprise last year came out to just over 4%.
Moving forward, for fiscal 2024, analysts anticipate that EPS will land at $6.28 on revenue of $42.31 billion. Last year, BMY posted EPS of $6.91 on revenue of $41.42 billion.
Now, that might seem modest. However, shares are trading hands at only 7.37X forward earnings. In contrast, drug manufacturers post a median forward multiple of 14.45X. Thus, BMY might be one of the undervalued healthcare stocks worth picking up.
CVS Health (CVS)
Falling under the healthcare plans subsegment, CVS Health (NYSE:CVS) represents one of the most recognizable brands in the broader industry. According to its public profile, CVS operates through the Health Care Benefits, Health Services and Pharmacy & Consumer Wellness segments. As a multi-tiered enterprise, it offers a wide canvas that could appeal to bargain hunters.
No, CVS stock hasn’t exactly lit up the board. However, it deserves a second look for its consistent performances. Notably, the company beat EPS targets four times out of the last four quarters. The average positive earnings surprise came out to just over 5%. Also, it’s worth mentioning that for Q2 2024, analysts have revised their expectations upward three times in the last 30 days.
For the current fiscal year, experts believe that EPS will land at $8.31 on revenue of $370.82 billion. Last year, CVS posted per-share profits of $8.74 on revenue of $357.78 billion.
Currently, shares trade hands at 9.48X forward earnings, below 85.71% of its peers. That seems overdone. Therefore, CVS ranks among the undervalued healthcare stocks to consider.
AMN Healthcare Services (AMN)
Operating under the medical care facilities segment, AMN Healthcare Services (NYSE:AMN) represents one of the riskier undervalued healthcare stocks. Still, if the market gods smile on AMN, it could swing dramatically higher. Per its corporate profile, the company provides healthcare workforce solutions and staffing services to healthcare facilities in the U.S.
At first glance, AMN doesn’t seem a bad idea. For example, in the most recent quarter, the company posted EPS of $1.32, beating the consensus view of $1.25. Overall, the average positive earnings surprise in fiscal 2023 clocked in at 10.6%. Strong performances in Q2 and Q3 helped pad the metric.
However, analysts anticipate a rough outing in fiscal 2024, projecting EPS of $3.96 on sales of $3.19 billion. In contrast, AMN posted per-share profits of $8.21 on revenue of $3.79 billion. Still, it might come down to a matter of appropriate pricing.
Currently, shares trade at 13.41X forward earnings, lower than 86.21% of sector rivals. Encouragingly, covering experts rate AMN a moderate buy with a $78.25 price target, implying a robust upside.
Royalty Pharma (RPRX)
Falling under the biotechnology sphere, Royalty Pharma (NASDAQ:RPRX) operates as a buyer of biopharmaceutical royalties and a funder of innovations in the biopharmaceutical industry. From its public profile, Royalty is also involved in the identification, evaluation and acquisition of royalties on various biopharmaceutical therapies.
Generally speaking, RPRX stock doesn’t generate much attention. That’s even more the case following a rough outing in 2023. However, contrarians targeting undervalued healthcare stocks might want to give Royalty another look. It’s surprisingly reliable, beating per-share profit estimates four times out of four last year. Indeed, the average positive earnings surprise stood at 11.88%.
For fiscal 2024, experts believe EPS will land at $3.77. That’s a bit short of the $4.50 posted in 2023. However, revenue may reach $2.63 billion. If so, it would be an 11.5% jump from last year’s print of $2.35 billion.
Enticingly, RPRX trades at 7.74X trailing-year revenue, below the sector median 9.63X. Also, analysts rate shares a unanimous strong buy with a $44 average price target. Again, it’s well worth consideration for undervalued healthcare stocks.
Voyager Therapeutics (VYGR)
Another entity falling under the biotech category, Voyager Therapeutics (NASDAQ:VYGR) focuses on the treatment of gene therapy and neurology diseases. The company’s lead clinical candidate is VY-TAU01, an anti-tau antibody program for the treatment of Alzheimer’s disease. Its pipeline also includes superoxide dismutase 1 silencing gene therapy, which is being investigated for the treatment of amyotrophic lateral sclerosis (ALS).
One of the exciting factors of VYGR is that it’s hit or miss. That’s not going to appeal to conservative investors but it should attract speculators. For example, in Q3 of last year, Voyager slightly widened its expected per-share loss of 58 cents by coming in at 59 cents to the red. However, in Q4, the company posted EPS of $1.25, dramatically beating the expected loss of 29 cents per share.
Now, analysts anticipate a rough year in fiscal 2024, projecting an 84% loss on the top line. However, they also forecast a recovery effort in fiscal 2025. Currently, shares trade at 1.72X tangible book value, below the sector median 2.88X.
That seems grossly undervalued considering that experts rate shares a unanimous strong buy with a $16.33 price target. Therefore, it’s one of the undervalued healthcare stocks to gamble on.
Semler Scientific (SMLR)
Operating in the medical devices subsector, Semler Scientific (NASDAQ:SMLR) arguably represents the riskiest idea on this list of undervalued healthcare stocks. Per its corporate profile, Semler provides technology solutions to enhance the clinical effectiveness and efficiency of healthcare providers. One of its main products is QuantaFlo, an in-office blood flow test that enables healthcare providers to use blood flow measurements as part of their examinations of a patient’s vascular condition.
At first glance, SMLR stock appears incredibly relevant. However, the market feels differently, getting severely “de-risked” earlier in March. One of the issues may have been underperformance in Q4 last year. Back then, Semler posted an EPS of 59 cents against an expected target of 57 cents. However, the positive earnings surprise of Q2 and Q3 came out to a robust 36.55%. By comparison, Q4 was disappointing.
Still, experts are hoping for a recovery year in fiscal 2024. They believe EPS will land at $3.40 on sales of $75.5 million. Last year, per-share profits reached $2.68 on revenue of $68.18 million. Shares trade at 10.59X trailing-year revenue without non-recurring items. That’s lower than 90.36% of competitors.
Lake Street believes SMLR could hit $65. If so, it’s worth keeping on your radar.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
