NEW YORK ( TheStreet) -- Which are the best stocks to buy now if you're worried about economic sensitivity? Health care stocks.
"All of these are in ascension, numbers are too low and their businesses are totally, and I mean totally, recession-proof," according to Jim Cramer, Mad Money star, co-portfolio manager of Action Alerts Plus, a charitable trust portfolio and Real Money columnist. Cramer is referring to a list of 12 health care stocks to buy despite the S&P 500's performance this year.
Cramer believes that the stocks of many good companies are being dragged down by the S&P 500 since the Index is up just 1.4% year-to-date. "I am talking about all the juicy stocks that are being thrown away right now that have no business being thrown away, and are only going down because they are a part of the S&P 500," he wrote in a Real Money post.
TheStreet paired Cramer's health care sector picks with TheStreet Ratings to determine whether they really are good investments going forward.
TheStreet Ratings, TheStreet's proprietary ratings tool, 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. Year-to-date returns are based on April 6, 2015 closing prices.
Check out which stocks are Cramer's favorites.
1. Actavis Plc (ACT)
Year-to-date Return: 15.7%
Actavis plc develops, manufactures, and sells generic, brand, and biosimilar pharmaceuticals. It offers over-the-counter products. The company also provides biosimilar products in women's health, oncology, and other therapeutic categories.
"After its acquisition of Allergan, Actavis now finds itself with an incredible product portfolio, one that Cramer thinks could earn up to $25 a share in earnings by 2017. Given a 20 times earnings multiple, that means Actavis could be worth up to $500 a share, he said.
TheStreet Ratings rates Actavis a buy, B-.
TheStreet Ratings said: "We rate ACTAVIS PLC (ACT) a BUY. 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, solid stock price performance, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. 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:
- The revenue growth greatly exceeded the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 46.0%. 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.
- Compared to its closing price of one year ago, ACT's share price has jumped by 41.68%, 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, ACT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has increased to $811.60 million or 32.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -9.09%.
- The gross profit margin for ACTAVIS PLC is rather high; currently it is at 58.07%. 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 -18.06% is in-line with the industry average.
- The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that ACT's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.
- You can view the full analysis from the report here: ACT Ratings Report
Here's a transcript of Actavis' fourth-quarter earnings conference call.