3 Healthcare Stocks to Consider as Defensive Plays

The stock market has been topsy-turvy, to say the least, and it might be a good idea to throw some defense on the field. Healthcare stocks provide an escape route during a cyclical downturn as they’re seen as ‘necessity stocks’ and are potentially the most likely to sustain a bull run in a stagnating economy.

Let’s take a look at three healthcare stocks to consider.

CVS Health Corporation

CVS Health Corporation (CVS) is a U.S.-based pharmacy chain with additional offerings throughout the healthcare system. I’m bullish on the stock due to its sustainable fundamentals, which could bode well in a risk-off environment.

The company reported a 10% year-over-year rise in revenue during its second quarter and also beat its earnings estimates by 10 cents per share. Furthermore, the stock provides a 10.95% return on equity (ROE), suggesting that its current investors are claiming solid residual value from their holdings.

CVS is an undervalued stock as its price-to-earnings ratio is trading at a 44.07% sector discount. Additionally, CVS stock is trading at a price to sales discount of 2.13x, indicating that the market hasn’t yet priced in its stellar topline revenue.

Wall Street analysts clearly back CVS’ odds with a Strong Buy consensus rating based on 10 Buys and three Holds assigned in the past three months. The average CVS price target of $118.79 implies 14.57% upside potential.

Eli Lilly and Company

Eli Lilly and Company (LLY) is a vertically integrated multinational pharmaceutical company. The firm’s dominant position in its supply chain is what grabbed my initial attention, and I’m bullish on its stock.

Eli and Lilly has maximized its return to shareholders lately. The stock has posted year-over-year levered free cash flow growth of 49.80%, revenue growth of 15.40%, and a 3-year EPS CAGR of 26.13%.

Another reason to be drawn to LLY is the company’s cunning ability to create long-term value. Eli and Lilly is investing $1 billion in manufacturing exploits in North Carolina and another $400 million in midstream operations in Ireland. These investments could yield significant returns to investors as Eli and Lilly’s currently operating at a return on assets of 10.71%, suggesting that it’s an expert in creating long-term value.

Furthermore, Eli and Lilly is operating an efficient business as indicated by its asset turnover ratio of 0.59%, which means it’s monetizing its asset base effectively. The stock has formed a momentum pattern lately and is trading above its 10-, 50-, 100-, and 200-day moving averages, providing a lucrative entry point for investors.

The consensus from Wall Street is that the stock is a strong buy, with nine Buys and one Hold assigned during the past three months. Analysts are yet to roll out their new price targets after the stock’s recent surge, which causes its average price target of $302.55 to imply a downside risk of 0.23%.

Roche Holding AG

Roche Holding (RHHVF) is a Swiss multinational specializing in prescription pharmaceuticals and diagnostics. I’m bullish on the stock.

Rocche achieved success with its recent full-year results as its group-wide sales increased by 9%, led by a 29% increase in diagnostics. Furthermore, the firm achieved a core earnings-per-share growth of 6% and a free cash flow surge of 34%.

Investors can anticipate highly sustainable residual returns on Roche stock, which currently boasts a 45.80% return on common equity and a 21.74% return on total capital. Roche also has sound liquidity with cash from operations of $22.99 billion, which exceeds its 5-year average by 12.43%.

The stock seems like good value for money at a price to earnings sector discount of 20.49% and a price to sales sector discount of 7.99%.

Roche gains Wall Street’s approval. The stock is rated as a Moderate Buy, with seven Buys and five Holds assigned during the past three months. The average Roche price target of $427.49 implies an upside of 4.22%.

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