Citi research analysts have come up with three rock star healthcare stocks out of 15 “world champions” across the spectrum of life sciences that they believe will stand out in a challenging macro economic environment.
Using admittedly a qualitative, “a bit more art than science” approach, Citi analysts looked for companies that had at least $3 billion in market cap, a top three market share in a third of their overall business and a global presence measured by “significant revenue” outside of their home countries. The final selection was made irrespective of the current rating on the stock.
The three, so-called best of the best are Gilead Sciences, Novo Nordisk and ResMed. Here’s why:
This Foster City, California-based biopharmaceutical company is poised to be the “dominant player in the lucrative hepatitis C market,” according to Citi. That market in the U.S. and Europe alone is a staggering $60 billion opportunity. Aside from its strength in this market, Gilead also leads in the HIV market. The Citi report is also bullish on the prospects of the global launch of Stribild worldwide.
Compared to its large-cap biotech peers, Gilead has a bigger exposure in overseas markets with more than 45 percent of sales coming from international sales. And that is where the growth is.
This data point is important given that Citi analysts report that the global investable stock market is still weighted heavily — 88 percent — toward developed markets, where growth is subdued at best.
Citi has a price target of $89 on Gilead, which currently trades at around $89.
Novo Nordisk is a Danish biopharma company with a big share of the global diabetes market. When it comes to the insulin market, Citi analysts believe the company has cornered 46 percent of the overall volume in the insulin market.
But aside from its commanding position in the worldwide insulin market, Novo Nordisk also leads the global growth hormone market while it is the No. 2 in the hemophilia-management market.
The Citi report points out that the company has a “very strong growth outlook” with a compounded annual growth rate of its earnings per share a good 9 percentage points ahead of industry average. Citi has a price target of Dkr (Danish Krone) 1,095 ($191.62) while the stock currently trades at Dkr 990.50 ($176.56).
This San Diego, California company with roots in Australia is all about helping you sleep better. It has a 42 percent share of the market for medical devices to treat sleep disorders, according to Citi. In fact, the company has been able to rejigger its manufacturing operations smartly over the past five years even as the Australian dollar has been strengthening vis-a-vis the U.S. dollar.
Its future is especially bright given that Citi expects there will be increased home-sleep-testing over the next three years and because of a new federal guideline that requires U.S. interstate truck drivers be screened for obstructive sleep apnea.
Citi has a price target of A$4.81 ($5.08) on the stock, which trades at around A$4.23 ($4.47).
The 12 other healthcare stocks that Citi analysts dub “World Champions” are Agilent Technologies, Allergan, Celgene, Cerner, Cochlear, Covidien, CSL, Eli Lilly, Essilor, IHH Healthcare Berhad, Roche and Sysmex.