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Is There a Rally Ahead for Healthcare Stocks After Bristol Meyers Beat Earnings?

James Dennin, Kapitall: Bristol Meyers beat earnings estimates, but does that mean 2014 will be another good year for healthcare stocks?

Healthcare stocks and consumer goods giants like Bristol Meyers Squibb (BMY) and Procter & Gamble (PG) are up today on the back of earnings reports that beat Wall Street's expectations. Bristol Meyers GAAP diluted EPS went up 21% for the quarter, sending shares up 3% during early morning trading, although the price has receded somewhat. 

Read more on Healthcare from Kapitall: Stock Watchlist for 2014: Biotechs, Medtechs and Pharmaceuticals

Procter & Gamble reported strong earnings as well, mostly on the back of rising sales on discretionary goods like diapers in emerging markets. Analysts estimated that earnings would be about $1.20 per share, which the company beat by a cent. As of 11:00 AM EST, the stock was up over 3%. 

Earnings reports have been highly scrutinized this January, as many on Wall Street worry about high valuations. All three of the major indices are down precipitously for the week, as investors adjust to an environment where choosing stocks is expected to be much trickier, and soaring prices are less common. 

Investing ideas

While Proctor & Gamble is primarily seen as a consumer goods maker, the largest in the world, the company also operates a healthcare segment. Based on the strong earnings of these two giants, we decided to build a list of healthcare stocks that are reporting earnings next week. 

Of the 30 or so healthcare stocks on that list, we narrowed it further based on market cap, profit margins, and projected EPS growth. 

Small and micro-cap healthcare stocks are very risky, since their price often hinges on FDA approval for a particular product. So we only included companies with a market cap above $2 billion. All of these companies also have fairly high profit margins, above 10%.

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