Valuation Dashboard: Healthcare – Update – iShares Nasdaq … – Seeking Alpha

This article series provides a monthly dashboard of industries in each sector of the GICS classification. It compares valuation and quality factors relative to their historical averages.

Biotechnology and Pharmaceuticals are cheaper in Price/Earnings and Price/Free Cash Flow than their historical averages, but they are worse in Price/Sales and profitability measured in ROE (much worse for the pharma industry). Other industries look overvalued by more than 20%. Life Science Tools/Services are significantly above their baseline in profitability, which may partly justify overpricing. Healthcare Equipment is the only group worse than its historical averages in all metrics.

Since last month:

P/E has improved in Healthcare Technology, Pharmaceuticals and deteriorated in Healthcare Equipment.

P/S has improved in Healthcare Equipment, Managed Healthcare and deteriorated in Biotechnology, Pharmaceuticals.

P/FCF has improved in Managed Healthcare, Pharmaceuticals and deteriorated in Healthcare Equipment.

ROE doesn't show a significant change in any group.

In 1 trailing month the SPDR Select Sector Healthcare ETF (XLV), the S&P 500 Pharmaceuticals ETF (XPH) and the Nasdaq Biotechnology ETF (IBB) have underperformed the SPDR S&P 500 ETF (SPY) by about 2%, 6% and 1% respectively.

The five best performers among S&P 500 Healthcare stocks on this period are Align Technology Inc (ALGN), Alexion Pharmaceuticals Inc (ALXN), Biogen Inc (BIIB), Illumina Inc (ILMN), Vertex Pharmaceuticals Inc (VRTX).

The stocks listed below are in the S&P 1500 index, cheaper than their respective industry factor for Price/Earnings, Price/Sales and Price/Free Cash Flow. The 10 companies with the highest Return on Equity are kept in the final selection.

I update every month 8 lists like this one covering all sectors (some sectors are grouped). The 8 lists together have returned about 25% in 2016. If you want to stay informed of updates, click "Follow" at the top of this page. My Marketplace Subscribers have an early access to the stock lists before they are published in free articles. Past performance is not a guarantee of future result. This is not investment advice. Do your own research before buying.

Amgen Inc (AMGN)

BIOTECH

Biogen Inc (BIIB)

BIOTECH

Eagle Pharmaceuticals Inc (EGRX)

BIOTECH

Gilead Sciences Inc (GILD)

BIOTECH

AmerisourceBergen Corp (ABC)

HCAREPROVID

AMN Healthcare Services Inc. (AMN)

HCAREPROVID

DaVita Inc (DVA)

HCAREPROVID

McKesson Corp (MCK)

HCAREPROVID

INC Research Holdings Inc (INCR)

MEDEQUIP

Phibro Animal Health Corp (PAHC)

PHARMA

I take 4 aggregate industry factors provided by portfolio123: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). My choice has been justified here and here. Their calculation aims at limiting the influence of outliers and large caps. They are reference values for stock picking, not for capital-weighted indices.

For each factor I calculate the difference with its own historical average: to the average for valuation ratios, from the average for ROE, so that the higher is always the better. The difference is measured in percentage for valuation ratios, not for ROE (already in percentage).

The next table reports the 4 industry factors. There are 3 columns for each factor: the current value, the average ("Avg") between January 1999 and October 2015 taken as an arbitrary reference of fair valuation, and the difference explained above ("D-xxx").

P/E

Avg

D- P/E

P/S

Avg

D- P/S

P/FCF

Avg

D- P/FCF

ROE

Avg

D-ROE

Health Care Equipment

44.07

27.18

-62.14%

4.12

3.18

-29.56%

47.16

30.51

-54.57%

-34.96

-12.14

-22.82

Managed Health Care

26.9

20.88

-28.83%

1.06

0.85

-24.71%

22.25

17.75

-25.35%

7.32

5.78

1.54

Health Care Technology*

78.34

56.13

-39.57%

3.34

3.39

1.47%

37.66

35.77

-5.28%

-13

-6.2

-6.8

Biotechnology

32.3

39.78

18.80%

36.66

29.01

-26.37%

28.86

43.74

34.02%

-75.15

-64.42

-10.73

Pharmaceuticals

23.09

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Valuation Dashboard: Healthcare - Update - iShares Nasdaq ... - Seeking Alpha