Deutsche Bank Recommends These 8 Health Care Stocks on Market Volatility

Editors' Pick: Originally published Jan. 11.

Market volatility in 2016 has caused many investment firms to amend their annual outlooks.

Last week Goldman Sachs stepped away from the herd, shaving its earnings expectations for the S&P 500 for 2015, 2016 and 2017, citing energy as "the leading driver of our reduced profit outlook," in a note to clients on January 7.

On Monday, Deutsche Bank was the latest investment firm to cut its 2015 S&P 500 earnings forecasts.

"Since publishing our 2016 outlook report in early December, many macro drivers of S&P EPS have deteriorated further," Deutsche Bank analysts wrote in a note on Monday. "In particular, oil prices legged down again, key currencies fell further and U.S. industrial activity continues to contract on weak capex and exports."

Deutsche Bank now expects fourth-quarter non-GAAP earnings for the S&P "to be down 2% y/y instead of flat and 2015 S&P EPS flat vs. 2014," the note read. As well, "these challenges are spilling" into the first quarter. The firm estimates first-quarter EPS for the S&P between $120 and $125, however that is highly dependent on oil prices.

An estimate of earnings per share of $125 for the Index assumes that oil prices average about $55 a barrel in in 2016. "This seemed reasonable several weeks ago, but now it doesn't," the note read. "A 25% rally in oil prices would result in only $40-45/bbl oil. This is still too low for Energy sector profits to be up in 2016."

"Moreover, the relationship between profits and the commodity price is now very uncertain. The estimate we made of [the energy sector's] profits up 15% is clearly too high now and until we see oil stabilize and get 4Q earnings reports from energy companies, we are simply unsure how much to cut our energy and thus overall 2016 S&P EPS estimate," Deutsche Bank said.

The analysts reiterated their "underweight" recommendation for the energy and industrials sectors, noting that "these conditions warrant a pause in Fed hikes to June."

Investors should stick with sectors that were leaders in 2015 such as health care and technology, according to Deutsche Bank.

The stocks on this list are Deutsche Bank-covered health care stocks (one of the sectors the firm rates "overweight") with market caps above $10 billion; price-to-earnings multiples on 2015 earnings that are less than 22 times; and earnings growth for 2015 at greater than 0.

We've paired the list with ratings from TheStreet Ratings, TheStreet's proprietary ratings tool for another perspective. When you're done be sure to check out Bank of America's stock picks that will make big moves over the next three months.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

 

 

 

1. Abbott Laboratories
1. Abbott Laboratories

Industry: Health Care/ Health Care Equipment & Supplies
Market Cap: $60 billion
P/E on 2015 EPS: 19.3x
12-Month Total Return: -9.1%

Deutsche Bank Rating/Price Target: Buy/$53

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate ABBOTT LABORATORIES (ABT) as a Buy with a ratings score of B. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 8.0% when compared to the same quarter one year prior, going from $537.00 million to $580.00 million.
  • ABT's revenue growth trails the industry average of 29.7%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.10, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for ABBOTT LABORATORIES is rather high; currently it is at 61.86%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 11.26% is above that of the industry average.
  • You can view the full analysis from the report here: ABT

2. Medtronic
2. Medtronic

Industry: Health Care/ Health Care Equipment & Supplies
Market Cap: $102.7 billion
P/E on 2015 EPS: 17.4x
12-Month Total Return: flat

Deutsche Bank Rating/Price Target: Buy/$90

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate MEDTRONIC PLC (MDT) as a Buy with a ratings score of B+. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MDT's very impressive revenue growth greatly exceeded the industry average of 29.7%. Since the same quarter one year prior, revenues leaped by 61.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $1,279.00 million or 40.08% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -3.57%.
  • MDT's debt-to-equity ratio of 0.69 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.74 is very high and demonstrates very strong liquidity.
  • Compared to where it was trading a year ago, MDT's share price has not changed very much due to (a) the relatively weak year-over-year performance of the overall market, (b) the company's stagnant earnings, and (c) other mixed results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • You can view the full analysis from the report here: MDT

3. Stryker
3. Stryker

Industry: Health Care/ Health Care Equipment & Supplies
Market Cap: $32.8 billion
P/E on 2015 EPS: 17.4x
12-Month Total Return: -6.2%

Deutsche Bank Rating/Price Target: Buy/$112

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate STRYKER CORP (SYK) as a Buy with a ratings score of B+. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 428.1% when compared to the same quarter one year prior, rising from $57.00 million to $301.00 million.
  • SYK's revenue growth trails the industry average of 29.7%. Since the same quarter one year prior, revenues slightly increased by 1.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.37, which illustrates the ability to avoid short-term cash problems.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, STRYKER CORP's return on equity exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SYK

4. Thermo Fisher Scientific
4. Thermo Fisher Scientific

(TMO)
Industry: Health Care/Life Sciences Tools & Services
Market Cap: $54 billion
P/E on 2015 EPS: 18.2x
12-Month Total Return: 4.6%

Deutsche Bank Rating/Price Target: Buy/$160

"Bottom line: TMO is the kind of company you own in this uncertain environment, as it is the largest player in the life sciences technology sector with the broadest reach and most diversified product portfolio," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio. "The company is targeting 4%-5% revenue compounded annual growth and low to mid-teens EPS CAGR through 2018. The LIFE Technologies acquisition continues to benefit the company through synergies and added value for customers. Even better, the company sports the best exposure to the faster-growing biopharma and diagnostic end markets, which will help fuel growth should any of the other divisions falter. Lastly, the company has a reliable capital deployment strategy as it generates strong free cash flow, and as we have said previously, we believe this could even increase and provide more value to shareholders. Our target remains $150."

Exclusive Look Inside:

You see Jim Cramer on TV. Now, see where he invests his money and why Thermo Fisher Scientific is a core holding of his multi-million dollar portfolio.

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5. Allergan
5. Allergan

(AGN)
Industry: Health Care/Pharmaceuticals
Market Cap: $116.4 billion
P/E on 2015 EPS: 19x
12-Month Total Return: 10%

Deutsche Bank Rating/Price Target: Buy/$308

"Allergan announced this week that is acquiring Anterios, a clinical-stage biopharma focused on developing a next-generation delivery system of botulinum toxin-based prescription products," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio. "Its proprietary platform delivers technology that enables local and targeted transfer of neurotoxins through the skin without the need for injections. While the acquisition is seemingly small, it does add to Allergan's already strong neurotoxin pipeline, which includes several new Botox treatments currently in development. As we have always said, Allergan has been very smart about its acquisitions, especially in the way it continues to add to its strength of facial and skin-related treatments. Our target remains $400."

Exclusive Look Inside:

You see Jim Cramer on TV. Now, see where he invests his money and why Allergan is a core holding of his multi-million dollar portfolio.

Want to be alerted before Jim Cramer buys or sells AGN? Learn more now.

 

6. Endo International
6. Endo International

Industry: Health Care/Pharmaceuticals
Market Cap: $12.1 billion
P/E on 2015 EPS: 12.4x
12-Month Total Return: -31%

Deutsche Bank Rating/Price Target: Buy/$84

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate ENDO INTERNATIONAL PLC (ENDP) as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 14.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for ENDO INTERNATIONAL PLC is rather high; currently it is at 64.23%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -140.86% is in-line with the industry average.
  • ENDO INTERNATIONAL PLC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENDO INTERNATIONAL PLC continued to lose money by earning -$0.18 versus -$4.67 in the prior year. This year, the market expects an improvement in earnings ($4.56 versus -$0.18).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 316.7% when compared to the same quarter one year ago, falling from -$252.08 million to -$1,050.44 million.
  • The debt-to-equity ratio of 1.40 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, ENDP maintains a poor quick ratio of 0.82, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: ENDP

7. Mylan
7. Mylan

Industry: Health Care/Pharmaceuticals
Market Cap: $23.9 billion
P/E on 2015 EPS: 12x
12-Month Total Return: -13.1%

Deutsche Bank Rating/Price Target: Buy/$66

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate MYLAN NV (MYL) as a Buy with a ratings score of B. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 29.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 121.19% to $974.80 million when compared to the same quarter last year. In addition, MYLAN NV has also vastly surpassed the industry average cash flow growth rate of -0.46%.
  • The gross profit margin for MYLAN NV is rather high; currently it is at 59.48%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MYL's net profit margin of 15.90% significantly trails the industry average.
  • The debt-to-equity ratio is somewhat low, currently at 0.65, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.98 is somewhat weak and could be cause for future problems.
  • MYLAN NV's earnings per share declined by 34.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MYLAN NV increased its bottom line by earning $2.34 versus $1.58 in the prior year. This year, the market expects an improvement in earnings ($4.33 versus $2.34).
  • You can view the full analysis from the report here: MYL

8. Perrigo
8. Perrigo

Industry: Health Care/Pharmaceuticals
Market Cap: $20.4 billion
P/E on 2015 EPS: 18.8x
12-Month Total Return: -17.6%

Deutsche Bank Rating/Price Target: Buy/$187

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate PERRIGO CO PLC (PRGO) as a Hold with a ratings score of C+. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 41.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.
  • PERRIGO CO PLC has improved earnings per share by 6.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PERRIGO CO PLC reported lower earnings of $0.94 versus $1.65 in the prior year. This year, the market expects an improvement in earnings ($7.75 versus $0.94).
  • Net operating cash flow has decreased to $136.00 million or 30.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • PRGO has underperformed the S&P 500 Index, declining 13.77% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • You can view the full analysis from the report here: PRGO

 

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