If you follow the healthcare sector, you probably know that many companies within the sector had sluggish performance leading up to the election. During the three months prior to the election, the Health Care Select Sector SPDR ETF (NYSEARCA:XLV) and the SPDR S&P Biotech ETF (NYSEARCA:XBI) tumbled over 10%.
The decline of many healthcare companies leading up to the election is primarily a result of Hilary Clinton’s plan to regulate the prices in the drug market and tighten restrictions on drug delivery firms. This not only hit drug companies like Merck and Pfizer, but also drug distributors like McKesson (NYSE:MCK), Cardinal Health (NYSE:CAH), and CVS (NYSE:CVS). McKesson’s stock plunged in late October by 22% after the firm posted earnings that missed estimates and offered poor guidance based upon less brand name drug pricing increases and future pricing scrutiny with the new administration. The CEO of McKesson John Hammergren opined on the news release; “Our updated outlook for Fiscal 2017 reflects McKesson’s expectation of a lower profit contribution resulting from recent customer pricing activities and lower operating profit as a result of further moderating branded pharmaceutical pricing trends compared to previous expectations,” The company lowered its full-year outlook to a range of between $12.35 a share and $12.85 a share, from a previous range of between $13.43 a share and $13.93 per share. McKesson’s stock has been the worst performing large-cap company within the industry in the last three months. Here is the list of the double-digit price losers since early August;
|Novo Nordisk ADR||-27.43|
|Teva Pharmaceutical Industr||-23.21|
|Zimmer Biomet Holdings Inc||-21.72|
|CVS Health Corp||-19.98|
|Edwards Lifesciences Corp||-18.57|
|AstraZeneca PLC ADR||-17.5|
|Cardinal Health Inc||-13.62|
|Smith & Nephew PLC||-13.38|
|Novartis AG ADR||-9.98|
Since Donald Trump has won the election for President, he has vowed to repeal the Affordable Care Act. This puts a new focus on providers of healthcare that have benefited from Obamacare such as the hospital and insurance companies. If 12 million people lose health insurance, they will not be able to pay their hospital bills much less afford new insurance or even pricey medications.
While dividend investors should not typically examine short-term events in their stock portfolios, it is a good idea to have a general scheme of what the companies you’re invested in and which are the most attractive under the election of Donald Trump.
Wednesday morning after the election, the market spoke in volumes. Investor’s bought up the beat-up pharmaceutical and biotech companies as investors felt that under the Republican administration and Congress, regulations would be cut back and any drug pricing dictums would be off the table. And although the election is of paramount importance to the healthcare sector’s future, revenue growth for 2016 has been solid all this year for most all industry’s outside of the drug distributors. According to Factset, the healthcare sector is reporting the second highest revenue growth of all eleven sectors at 7.1%. Among some of the big gainers since the election are the firms I favor, primarily drug and biotech firms that will continue to benefit from new product innovation and a lack of pricing control. These 10 favored firms by my ranking system also pay out generous dividends;
|My Rank||Company||Symbol||Industry||Yield||Day After Election Performance|
|3||GlaxoSmithKline ADR||GSK||Drug Manufacturers||4.70%||3.21%|
|7||Teva Pharmaceutical ADR||TEVA||Drug Manufacturers||3.14%||3.10%|
|17||Cardinal Health||CAH||Drugs Wholesale||2.62%||5.97%|
|77||UnitedHealth Group||UNH||Healthcare – Insurance||1.80%||-0.70%|
|85||Quest Diagnostics Inc.||DGX||Medical Laboratories & Research||1.98%||-3.71%|
My number one selection in the sector, Pfizer (NYSE:PFE), surged in price this week. The New Jersey-based drug maker hit its highest stock price since September. Pfizer’s pipeline of new drugs is one of the best within the industry including Xeljanz for rheumatoid arthritis and Ibrance in breast cancer. The company just received EU approval for Ibrance in a specific type of breast cancer. Additionally, according to aReuters article, Pfizer is considering the sale or spin-off of its consumer health segment for as much as $14 billion. These new funds could be utilized to enhance its research division or make an acquisition of another growing biotech company. The company will pay it next $0.30 dividend on December 1. Pfizer is expected to increase its dividend during early 2017. It typically raises its dividend by about 7% per year.
UK-based, GlaxoSmithKline ADR (NYSE:GSK), followed its peers in the drug manufacturer industry, and saw an increased share price this week. The company had positive Q3 earnings results that beat consensus by 8%. It has several key offering including Bexsero in vaccines and respiratory drugs Incruse and Breo. Although it will lose Advair to generics in late 2017, its wide product mix and strong vaccine position will allow GSK to continue to grow by single digits. It is also well positioned for any adverse pricing in the U.S. as it maintains a lower revenue exposure to our country than most other pharmaceutical firms. The company has a very attractive dividend yield for investors of about 4.7%, which is well covered. It trades as an ADR on the New York Stock Exchange. The company will pay its next dividend on January 12 and is ranked #3 in our Top 100 Dividend Stocks.
Teva Pharmaceutical ADR (NASDAQ:TEVA) is the largest generic drug firm in the world. The Israel-based generic drug maker that also reacted positively to the election result. The stock has done poorly this year primarily due to the faltering generic drug growth. Also the generic stocks fell following a Bloomberg article that the Department of Justice might file price collusion charges against generics. It is also open to generic competition on its premier product Copaxone. But the firm continues to grow and recently acquired the generic unit of Allergan. It has a $2 billion cost savings plan in place and modest single-digit growth. The company now offers an attractive dividend yield of 3.14%, and has held its quarterly dividend of $0.2890 steady since 2015. Since the company is foreign, its dividend can be slightly less predictable than domestic stocks. TEVA is expected to declare its next dividend later this month.
Amgen (NASDAQ:AMGN), ranked #10 overall, jumped nearly 10% following the election results. The company, which focuses on drug manufacturing in therapeutics areas and biotechnology, has seen its dividend grow much faster than the industry and now offers a compelling yield for dividend investors. The firm has suffered recently from weaker sales growth, but we believe that their new product line of Prolia, Repatha, Xgeva, and Krprolis will offset the bio-similar generic losses of Neupogen and Neulasta. The firm has been increasing its dividend continuously for five years. Amgen will pay its next quarterly dividend of $1.00 on December 8. Following its next dividend payout, the company is expected to raise its dividend. Historically, the company’s dividend increases are close to 25% per year.
Healthcare product company, Cardinal Health , jumped nearly $7 a share since the election results on Wednesday. But the price is still well below the $90.50 level from May of 2015. It is the only non-pharmaceutical firm in my Top 50 companies. Cardinal is my favorite pharmaceutical distributor. As with McKesson, it became another drug distributor to warn that the slowing pace of branded drug-price increases along with lower generic-drug pricing has had an impact. It forecast annual adjusted earnings per share of between $5.40 and $5.60, down from $5.48 to $5.73 previously. But the firm does not have a multitude of customer renewals in the next few years, which should help keep revenue more steady than their competitors. The firm has not altered its commitment to 10% plus earnings growth over the next five years. The stock has a dividend yield of about 2.6% and has been raising its annualized dividend every year since 2005 (typically by over 10% per year). Cardinal Health will pay its next dividend of $0.4489 on January 15.
Novartis (NYSE:NVS) is also one of my preferred healthcare stocks and ranks #37. The Switzerland-based healthcare company offers a dividend yield of nearly 4% and will pay its next annual dividend of $2.718 on April 15. Novartis was recently featured in a detailed article.
Other Stocks we like;
Merck (NYSE:MRK) joined the drug maker rally this week, surging over 6% on Wednesday alone. The company has a dividend yield over 3%, and raises its dividend by about 2.5% every year. Merck currently pays a dividend of $0.46 quarterly, but will likely increase the payout during its November declaration. It has stellar opportunities in cancer and was one of my top three pharmaceutical firms last year. However, the price rise has dropped Merck’s ranking below other drug firms like Pfizer, Glaxo, Amgen, and Novartis.
Shares of UnitedHealth Group (NYSE:UNH) dipped on Wednesday, but actually rebounded on Thursday, jumping more than 3%. The healthcare insurance provider currently offers a quarterly dividend of $0.625 and will pay its next dividend on December 15. It will be more impacted by the repeal of Obamacare, but does trade at a low valuation and maintains a solid dividend. The company has been raising its dividend since 2010, typically by about 25% annually, one of the highest rates in the healthcare industry. Its yield is just under 2%.
Quest Diagnostics Inc.(NYSE:DGX) declined after the initial news of the election, but was able to partially rebound on Thursday. The company currently has a dividend yield of about 2% and has a $0.40 quarterly payout. It is likely that the company will declare its next dividend in December. It should be less impacted by the new healthcare laws that will go into effect next year as it provides testing services and its revenue is more stable.
Medtronic (NYSE:MDT) is a medical technology company that sells its products to hospitals and other healthcare institutions. Shares of Medtronic dropped after the election, which is likely due to its affiliations with establishments that are directly impacted by the future of The Affordable Care Act. The company has a yield over 2% and currently pays a $0.43 dividend. It is likely that the company will declare its next dividend in December. The stock is not priced as cheaply as it was three years ago, but offers a solid yield and a lower beta. There is also the opportunity for the firm to benefit from the repeal of the medical device tax.