The heightened market volatility due to the rising inflation, the Fed’s rate hikes, and supply chain issues have caused several healthcare stocks to slump in price. However, the healthcare industry continues to outperform the broader market, as is evident from the Health Care Select Sector SPDR’s (XLV) 13.6% year-to-date decline compared to SPDR S&P 500 Trust ETF’s (SPY) 21.1% fall. Demand for healthcare goods and services remains significantly vital.
On the other hand, President Biden’s Advanced Research Projects Agency for Health (ARPA-H) proposal for boosting U.S.’ biomedical and health research recently got authorized for eventual implementation. This plan is expected to drive advanced and cost-efficient medical research for critical illnesses in the future and should benefit the industry. Furthermore, the resurgence of covid cases has brought renewed focus on the healthcare sector. According to the CDC, cases climbed above 100,000 in May- three times more than last year.
Therefore, we think fundamentally sound, dividend-paying healthcare stocks Gilead Sciences, Inc. (GILD) and Dow Inc. (DOW), which look undervalued at their current prices, could be solid additions to your portfolio. These bargain stocks are rated ‘Buy’ in our proprietary POWR Ratings system.
Gilead Sciences, Inc. (GILD)
Biopharmaceutical company GILD discovers, develops, and commercializes medicines for unmet medical needs in the United States, Europe, and internationally. Functional across more than 35 countries, the company is dedicated to innovative drugs for treating life-threatening diseases like HIV, viral hepatitis, and cancer.
On May 2, 2022, GILD and Dragonfly Therapeutics announced their collaboration to advance Dragonfly's novel natural killer (NK) cell engager-based immunotherapies for oncology and inflammation. NK cell engager-based treatment is an advanced treatment method for different kinds of carcinoma and inflammatory diseases. GILD’s product commercialization is expected to bolster solid growth for both companies.
GILD has been paying dividends for six consecutive years. GILD’s dividend payouts have grown at a 7.8% CAGR in the past five years. Its current dividend translates to a 4.81% yield, while its four-year average yield is 3.84%.
GILD’s total revenues came in at $6.59 billion for the first quarter ended March 31, 2022, up 2.6% year-over-year. Its non-GAAP net income came in at $2.68 billion, up 3.8% year-over-year, while its non-GAAP EPS came in at $2.12, up 3.9% year-over-year.
In terms of forward EV/EBITDA, GILD’s 7.33x is 44% lower than the industry average of 13.09x. Its forward P/S of 3.10x is also lower than the industry average of 4.32x.
GILD’s EPS is estimated to grow 104.6% year-over-year to $1.41 for the fiscal fourth-quarter ending December 2022. It surpassed EPS estimates in three of the four trailing quarters. Over the past month, the stock has lost 5.2% to close yesterday’s trading session at $59.15.
GILD’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating equating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GILD has an A grade for Value and a B grade for Quality. Within the Biotech industry, it is ranked #11 out of 400 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for GILD.
Dow Inc. (DOW)
DOW provides various materials science solutions for packaging, infrastructure, mobility, and consumer applications in the United States, Canada, Europe, the Middle East, Africa, India, the Asia Pacific, and Latin America. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings segments.
On April 21, 2022, Jim Fitterling, chairman and CEO, said, “Dow delivered on our financial targets with top-quartile EBITDA margins, return on capital, free cash flow yield, shareholder remuneration, and debt reduction. We also recently announced a new $3 billion share repurchase program – a direct result of our performance as well as our balanced and disciplined capital allocation approach.”
DOW has been paying dividends for three consecutive years. DOW’s dividend payouts have grown at a 58.7% CAGR in the past three years. Its current dividend translates to a 4.53% yield, while its four-year average yield is 4.49%.
DOW’s net sales increased 28.5% year-over-year to $15.26 billion for the first quarter ended March 31, 2022. Its non-GAAP net income reached $1.74 billion, up 69.8% year-over-year. Also, its non-GAAP EPS came in at $2.34, up 72.1% year-over-year.
DOW’s forward EV/EBITDA of 5.15x is 20.1% lower than the industry average of 6.44x. Moreover, its forward P/S of 0.75x is lower than the industry average of 1.30x.
For 2022, analysts expect DOW’s revenue to be $59.48 billion, representing an 8.2% year-over-year rise. It surpassed EPS estimates in each of the trailing four quarters. Over the past month, the stock has lost 13.1% to close yesterday’s trading session at $58.68.
DOW’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our POWR Ratings system.
Also, the stock has an A grade for Value and a B grade for Quality. Within the A-rated Chemicals industry, it is ranked #24 out of 92 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for DOW.
GILD shares were trading at $58.14 per share on Tuesday morning, down $1.01 (-1.71%). Year-to-date, GILD has declined -18.91%, versus a -21.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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