NEW YORK (TheStreet) -- Biotechnology and health care are some of the hottest areas for investment these days. But how should investors differentiate between the plethora of companies working their way through clinical trials with what could be the latest and greatest drug therapy? Or those companies that are benefitting from aging baby boomers -- not to mention wading through the changes brought on by the Affordable Care Act?

The pharmaceuticals and biotech sectors are also getting a boost from consolidation in the market. On Tuesday, AbbVie (ABBV - Get Report) announced that it was acquiring leukemia drug maker Pharmacylics (PCYC) for $21 billion.

Credit Suisse (CS - Get Report) analysts put forth best investment ideas in a variety of sub-sectors for the next six to 12 months, in a report issued Wednesday. Analysts were allowed to choose up to three stocks in their coverage area. The exercise resulted in a list of 140 top stock ideas -- 29 are small cap (under $4.1 billion), 56 are SMID (under $9.6 billion), and 81 are mid cap ($2-27.1 billion), the report said.

The analysts came up with eight best health care and biotech stock ideas.

TheStreet paired Credit Suisse's investment perspectives on the stocks with ratings from TheStreet Ratings, its proprietary research tool, to give an added perspective on the stock picks.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, 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 equities 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.

Here are Credit Suisse's top picks for the overall health care sector. And when you're done make sure to check out Credit Suisse's top financial services stocks to buy. Year-to-date returns are based on March 4, 2015 closing prices.

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1. Celgene (CELG - Get Report)
Sub-industry: Biotech
Market Cap: $95.7 billion
Target Price: $145
Year-to-date return: 6.9%

Credit Suisse's Ravi Mehrotra said: Celgene's pipeline potential is underappreciated. While the company's patent challenge has been the main focus of investors, Celgene's pipeline is not being priced into the multiple and represents asymmetric risk on the upside.

TheStreet Ratings said: TheStreet Ratings team rates CELGENE CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CELGENE CORP (CELG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, robust revenue growth and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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

  • Powered by its strong earnings growth of 196.00% and other important driving factors, this stock has surged by 54.20% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CELG should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • CELGENE CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CELGENE CORP increased its bottom line by earning $2.40 versus $1.69 in the prior year. This year, the market expects an improvement in earnings ($4.81 versus $2.40).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Biotechnology industry. The net income increased by 186.3% when compared to the same quarter one year prior, rising from $214.40 million to $613.90 million.
  • CELG's revenue growth trails the industry average of 36.4%. Since the same quarter one year prior, revenues rose by 18.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Biotechnology industry and the overall market, CELGENE CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

 

 

 

CAH Chart CAH data by YCharts

2. Cardinal Health Inc. (CAH - Get Report)
Sub-industry: Health Care Distribution & IT
Market Cap: $29.4 billion
Target Price: $97
Year-to-date return: 10.3%

Credit Suisse Glen Santangelo said: We expect positive results out of the core distribution business, benefits from recent M&A and greater than expected capital deployment to drive earnings growth above and beyond expectations.

TheStreet Ratings said: TheStreet Ratings team rates CARDINAL HEALTH INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate CARDINAL HEALTH INC (CAH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."

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

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • CARDINAL HEALTH INC has improved earnings per share by 8.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CARDINAL HEALTH INC increased its bottom line by earning $3.37 versus $0.95 in the prior year. This year, the market expects an improvement in earnings ($4.35 versus $3.37).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 18.4%. Since the same quarter one year prior, revenues rose by 14.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, CARDINAL HEALTH INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 2475.67% to $953.00 million when compared to the same quarter last year. In addition, CARDINAL HEALTH INC has also vastly surpassed the industry average cash flow growth rate of 105.25%.

 

CYH Chart CYH data by YCharts

3. Community Health Systems Inc. (CYH - Get Report)
Sub-industry: Health Care Facilities & Services
Market Cap: $6.2 billion
Target Price: $66
Year-to-date return: -2.2%

Credit Suisse Ralph Giacobbe said: We expect an operational rebound in 2015 with improving volume, PA Medicaid expansion boosting reform benefits, and potential for greater HMA synergy capture, all with the lowest embedded organic growth expectation and cheapest valuation.

TheStreet Ratings said: TheStreet Ratings team rates COMMUNITY HEALTH SYSTEMS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate COMMUNITY HEALTH SYSTEMS INC (CYH) a BUY. This is driven by some important positives, 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, attractive valuation levels, solid stock price performance, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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

  • CYH's very impressive revenue growth greatly exceeded the industry average of 18.4%. Since the same quarter one year prior, revenues leaped by 52.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 254.8% when compared to the same quarter one year prior, rising from $28.18 million to $100.00 million.
  • Net operating cash flow has significantly increased by 50.70% to $976.00 million when compared to the same quarter last year. Despite an increase in cash flow of 50.70%, COMMUNITY HEALTH SYSTEMS INC is still growing at a significantly lower rate than the industry average of 105.25%.

 

ILMN Chart ILMN data by YCharts


4. Illumina (ILMN - Get Report)
Sub-industry: Life Sciences & Tools
Market Cap: $81.1 billion
Target Price: $230
Year-to-date return: 4.4%

Credit Suisse's Vamil Divan said: Return to sequential revenue growth, driven by the MiSeq launch and improving consumable sales, provides near-term comfort. Longer-term, we are bullish on the company being able to successfully drive their technologies into the lucrative clinical diagnostics arena.

TheStreet Ratings said: TheStreet Ratings team rates ILLUMINA INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate ILLUMINA INC (ILMN) a BUY. This is driven by some important positives, 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, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

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

  • The revenue growth came in higher than the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 32.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ILLUMINA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ILLUMINA INC increased its bottom line by earning $2.37 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($3.19 versus $2.37).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Life Sciences Tools & Services industry. The net income increased by 90.0% when compared to the same quarter one year prior, rising from $80.66 million to $153.28 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Life Sciences Tools & Services industry and the overall market, ILLUMINA INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for ILLUMINA INC is currently very high, coming in at 75.46%. Regardless of ILMN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ILMN's net profit margin of 29.91% significantly outperformed against the industry.

 

AET Chart AET data by YCharts

5. Aetna Inc. (AET)
Sub-industry: Managed Care
Market Cap: $35.5 billion
Target Price: $112
Year-to-date return: 14.5%

Credit Suisse's Ralph Giacobbe: We remain optimistic around the many opportunities ahead of AET (CVH integration, MA, public/private exchanges) and view 2015 guidance as conservative with many potential upside levers, including lower cost trend. Longer-term mgmt. has discussed the expectation of getting back to its targeted low double-digit EPS growth rate in 2016 and for $10+ in EPS by 2018 (~13% CAGR). We believe the longer-term growth is encouraging and speaks to the company's diversification and various growth opportunities across its portfolio. AET currently trades at a discount to peers, which we expect to narrow given growth outlook, and potential for upside to estimates.

TheStreet Ratings said: TheStreet Ratings team rates AETNA INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate AETNA INC (AET) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance and revenue growth. We feel these 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:

  • Compared to its closing price of one year ago, AET's share price has jumped by 39.05%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AET should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 18.4%. Since the same quarter one year prior, revenues rose by 12.0%. 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.
  • AETNA INC's earnings per share declined by 35.0% 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, AETNA INC increased its bottom line by earning $5.66 versus $5.35 in the prior year. This year, the market expects an improvement in earnings ($7.15 versus $5.66).
  • The gross profit margin for AETNA INC is currently lower than what is desirable, coming in at 25.26%. Regardless of AET's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.57% trails the industry average.
  • 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 Health Care Providers & Services industry. The net income has significantly decreased by 37.1% when compared to the same quarter one year ago, falling from $368.90 million to $232.00 million.

 

MDT Chart MDT data by YCharts

6. Medtronic (MDT - Get Report)
Sub-industry: Medical Supplies & Devices
Market Cap: $111.4 billion
Target Price: $85
Year-to-date return: 8.3%

Credit Suisse's Bruce Nudell said: After updating our accretion estimates to reflect the new deal financing, we now see ex-amortization EPS accretion of $0.22/$0.45/$0.69 in FY16-18 which relative to our pre-deal FY16-FY18 ex-amortization EPS estimate of $4.62/$4.91/$5.21 implies combined company ex-amortization EPS of $4.84/$5.35/$5.90. Of note, the accretion implied by the announcement is slightly above the accretion estimates we published on 9/23 ($0.22/$0.40/$0.59) due to modest assumed debt repayment. Overall, as we previously noted, while the EPS accretion is softened somewhat by use of debt in place of OUS cash, we believe the transaction as structured is attractive with upside possible in the form of both added cost synergies above the $850M FY18 target & revenue synergies (we believe MDT likely assumes upside from both are possible over time).

TheStreet Ratings said: TheStreet Ratings team rates MEDTRONIC PLC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MEDTRONIC PLC (MDT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, solid stock price performance, increase in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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

  • MDT's revenue growth has slightly outpaced the industry average of 0.9%. Since the same quarter one year prior, revenues slightly increased by 3.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 30.66% and other important driving factors, this stock has surged by 36.32% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MDT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry average. The net income increased by 28.2% when compared to the same quarter one year prior, rising from $762.00 million to $977.00 million.
  • Net operating cash flow has slightly increased to $1,767.00 million or 9.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -21.69%.

 

BMY Chart BMY data by YCharts
7. Bristol Myers Squibb Co. (BMY - Get Report)
Sub-industry: Pharmaceuticals
Market Cap: $109.2 billion
Target Price: $68
Year-to-date return: 11.3%

Credit Suisse's Vamil Divan: We rank BMY it as one of our most compelling names in our Pharmaceuticals coverage universe given it appears best positioned to benefit from a multi-year immuno-oncology (I-O) story that is still in the very early innings. Investment positives: (1) Bristol's attractive pipeline, which is supported by its leading position in I-O and spearheaded by the nivolumab/Yervoy combination; (2) reasons to maintain optimism on key marketed products such as Eliquis that has best-in-class data but have not performed up to expectations thus far; and (3) potential for significant operating leverage as key franchises mature.

TheStreet Ratings: no rating available at this time

 

PTCT Chart PTCT data by YCharts
8. PTC Therapeutics (PTCT - Get Report)
Sub-industry: SMID Cap Biotechnology
Market Cap: $2.4 billion
Target Price: $100
Year-to-date return: 36.1%

Credit Suisse's Jason Kantor said: PTCT has become substantially derisked with the European approval of Translarna for the treatment of muscular dystrophy (DMD). We have high confidence in the fully enrolled comfirmatory Phase III trial in DMD that is expected to read out in October 2015. Additional positive clinical and regulatory announcements are expected including (1) the expected early filing for conditional approval in Europe for cystic fibrosis (CF), (2) a more rapid regulatory strategy for DMD in the US, and (3) updates on its pipeline program for spinal muscular atrophy (SMA) with partner Roche.

TheStreet Ratings said: TheStreet Ratings team rates PTC THERAPEUTICS INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate PTC THERAPEUTICS INC (PTCT) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share and deteriorating net income."

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

  • PTC THERAPEUTICS INC's earnings per share declined by 12.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, PTC THERAPEUTICS INC reported poor results of -$3.21 versus -$1.56 in the prior year. For the next year, the market is expecting a contraction of 13.6% in earnings (-$3.65 versus -$3.21).
  • 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 Biotechnology industry. The net income has significantly decreased by 52.5% when compared to the same quarter one year ago, falling from -$17.89 million to -$27.27 million.
  • Compared to other companies in the Biotechnology industry and the overall market, PTC THERAPEUTICS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Compared to its closing price of one year ago, PTCT's share price has jumped by 109.97%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in PTCT do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • PTCT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.