These 2 Undervalued Health Care Stocks Are Poised to Break Higher

Shares of Cepheid and Hologic are oversold and are on their way up.
By Chiradeep BasuMallick ,

The mayhem on Wall Street often drives stocks way below their fair value, and that is when investor should snap them up to earn profits.

Let's look at two oversold bargain-priced, moneymaking gems in the health care industry.

1. Cepheid (CPHD)

Shares of molecular diagnostics company Cepheid are available at a 45% discount compared with a year ago.

Ten-year old Cepheid makes fully integrated systems for testing in the clinical market and for application in its original non-clinical market. Investors deserted the stock in droves after disappointing earnings, but it is on the verge of a long-term upward trajectory.

The Food and Drug Administration has accepted the first test to detect definite genetic markers of bacteria that are resistant to carbapenem antibiotics, the classic drug given in hospitals to treat grave infections. Cepheid developed the test, Xpert Carba-R Assay.

The test produces outcomes in 48 minutes, compared with as long as four days for culture, so, this is a massive opportunity for the net-debt free company.

No wonder, the stock has gained 15% in just 30 days.

Earnings challenges are also a thing of the past for Cepheid, which in the first quarter beat earnings estimates by 7 cents a share and reported 9.2% year-over-year revenue growth, also surpassing Wall Street projections.

Second-quarter results are expected to surpass those of a year earlier, accompanied by a double-digit top-line increase.

For the next five years, Cepheid is projected to deliver attractive 20% average annual earnings growth. This is much faster than larger rival Becton Dickinson, which has a 13.36% earnings growth outlook.

Cepheid may not have made an annual profit so far but revenue is growing at a fair pace. With momentum back in this stock, analysts' median price target of $38 over the next 12 months looks within reach and would represent a 15% upside.

2. Hologic (HOLX) - Get Report

Shares of Hologic, a diagnostic and surgical systems supplier for women's health, is nearly 10% cheaper than it was at the beginning of the year.

Hologic was under pressure for some time after its April earnings guidance fell short of expectations. 

For the fiscal year ending in September, Hologic is projected to deliver 14.40% earnings growth. Over the next half a decade it is expected to deliver 9.73% annual earnings growth, versus 7.53% for the previous five years.

Hologic's stock has risen 15 times in the past 26 quarters after earnings were released, and it has beaten earnings estimates every time in the past 12 reports, according to ZergWatch.

Trading at a forward price-earnings ratio of 16.7, Hologic is cheaper than peer Alere, which trades at more than 17 times.

With its operation in the niche women's arena, this is a solid company that could eventually be an attractive acquisition target for bigger players. With hard-to-make innovations such as GENIUS 3D mammography, Hologic is a leader in the tomosynthesis market.

On the financial side, Moody's expects Hologic's leverage to improve over the next 12 to 18 months. Also, the company is financially sound, regularly delivering $400 million to $700 million in annual free cash flow.

The FDA's approval for use of the Procleix Zika virus blood screening assay on the Procleix Panther system under the agency's Investigational New Drug study protocol is a positive.

Analysts see Hologic stock's hitting $42 a share, which would represent a 20.52% increase.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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