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Walmart's New Health Food Push: Is It Too Hard to Swallow?Due to what he calls a "paucity of appealing choices" in health care, Chuck Carlson has been strongly underweighting the sector in his Dow Theory Forecasts.
In fact, he currently recommends only three health-care stocks: AstraZeneca (NYSE: AZN), Johnson & Johnson (NYSE: JNJ) and UnitedHealth Group (NYSE: UNH). Here, he explains the reasons that this trio stands out from its health care peers.
Regarding AstraZeneca, he points out that five key products will drive sales growth: breast-cancer treatment Arimidex, cholesterol drug Crestor, Nexium for ulcers, the Seroquel antipsychotic, and asthma treatment Symbicort.
Seroquel, he notes, is already a top treatment for schizophrenia and bipolar mania, and was approved for the treatment of bipolar depression last year. Symbicort, which already generates more than $1 billion in revenue overseas, will be launched in the U.S. in mid-2007, he forecasts.
Trading at 13 times projected 2007 earnings, the advisor rates the stock a Long-Term Buy and called the shares attractively valued.
Carlson second pick is Johnson & Johnson, which he notes introduced over 400 new consumer-health products last year and strengthened its pharmaceutical business by launching four new products.
Indeed, he notes, at least 10 new prescription products are on track for regulatory approval in 2007.
He points out, "While growth has slowed in recent quarters, at 16 times expected 2007 earnings, J&J shares already seem to reflect much of the growth concerns. Consensus estimates are conservative, projecting per-share-profit growth of 4% this year and 8% in 2008 -- numbers the company should be able to beat.
Dow Theory looks outside the pharmaceutial segment for its third health care pick. UnitedHealth Group, Carlson notes, grew its membership by more than 1.5 million customers in 2006, adding 860,000 members through internal expansion and 700,000 through acquisitions.
The advisor points out that UnitedHealth serves about 70 million customers and provides health-care services through more than 520,000 physicians and 4,700 hospitals nationwide.
He explains, "The launch of the company's Ovations Medicare Part D prescription-drug insurance last year produced initial enrollment of 5.7 million seniors and garnered the company a 25% share of the growing market."
The advisor notes that the firm is also seeing growth in its AmeriChoice business, which manages health-care services for state Medicaid programs.
Carlson notes, "UnitedHealth trades at 16 times the 2007 profit estimate of $3.40 per share, roughly in line with the valuation of the average health insurer. Strong and steady growth has traditionally earned this stock a premium valuation relative to its peers."
For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.
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