The stock market’s tumble this year -- the S&P 500 has dropped 21% -- has given many solid companies attractive valuations.
Morningstar has identified two health-care companies it likes that are now trading around fair value.
But it suggests you keep an eye on them “because if volatility persists, these stocks may dip into buying range this month,” Susan Dziubinski, director of content for Morningstar.com, wrote in a commentary.
Pfizer
One company is pharmaceutical giant Pfizer (PFE). Morningstar analyst Damien Conover assigns it a wide moat and puts fair value for the stock at $48. It recently traded at $51.21.
“For 2022, we expect over $60 billion in covid product sales (vaccine Comirnaty and treatment Paxlovid), close to 10% above management’s guidance,” Conover wrote in a commentary.
“With close to 120 million courses of Paxlovid likely to be produced in 2022, significant upside exists for this efficacy-leading drug in the near term.”
But Conover sees covid sales falling sharply starting late next year, as the pandemic moderates and vaccine use saturates.
In the first quarter, Pfizer’s sales excluding covid products increased 2%, “with solid growth from new products offsetting generic competition for older drugs,” Conover said.
“We expect slightly faster growth for the underlying business over the next five years, given relatively low patent losses and continued gains from core drugs.
"This steady outlook and an improving pipeline help reinforce our wide moat rating.”
As for the pipeline, “Pfizer is making strides with several potential new blockbusters,” Conover said. He’s most bullish on three immunology drugs.
Intuitive Surgical
The other company Morningstar cites is Intuitive Surgical (ISRG), which makes robotic systems for surgery. Morningstar analyst Alex Morozov gives it a wide moat and puts fair value for the stock at $204. It recently traded at $201.26.
“Intuitive Surgical fared remarkably well during the pandemic, even as many hospitals struggled with tight capital budgets and elective surgeries were almost nonexistent during the peak,” he wrote in a commentary.
“Now, with things returning to normal, the company is set to resume its march toward global adoption of robotic surgery.”
So what’s the outlook going forward? “Our long-term positive view on the company's competitive positioning is unchanged, even as new rivals are entering the previously monopolistic area of robot-assisted surgery,” Morozov said.
“Even with the company's procedure volume approaching 1.6 million per year, we think the total addressable global market of several times that size still offers ample growth opportunities, particularly overseas.”
Morozov says “existing applications only scratch the surface of possible procedures in soft-tissue surgery that could migrate to the robot.”
