4 Great Healthcare Stocks To Buy Ahead Of Q4 Earnings

Given that repealing and replacing Obamacare was on the top of the Trump administration’s agenda, the healthcare sector exited 2017 quite creditably. Such gains are likely to continue with the Health Care Select Sector SPDR (XLV) up 23% over the last one year, a shade higher than the S&P 500’s increase of 22.1%. Also, though the individual mandate for Obamacare has now been abolished, prospects for the sector continue to remain bright.

The all too familiar factors of an ageing population and steady demand for healthcare services, irrespective of economic conditions, continue to make stocks from the sector a lucrative option. Further, earnings and revenues from the sector are likely to improve in the fourth quarter, which makes it a good idea to pick up select healthcare stocks which are also slated to outperform their earnings estimates.

2017’s “Repeal and Replace” Scare

One of President Trump’s clarion calls on the campaign trail, repealing and replacing the Affordable Care Act was always going to be high on his agenda. Initially, in March, the Trump administration unveiled the American Healthcare Act, which proposed to ring in radical changes, such as eliminating the taxes mandated under Obamacare. At the same time, it sought to retain some of the existing law’s more popular provisions.

While the House of Representatives voted to pass the Bill on May 4, albeit by a narrow margin, the draft legislation failed to garner the requisite support in the Senate. Faced with a serious legislative reversal, President Trump instead issued an executive order and took other steps, all of which sought to weaken, if not replace, Obamacare entirely.

Ultimately, the Trump administration sought to achieve its primary objectives, tax cuts and a new healthcare legislation, through the Tax Cuts and Jobs Act of 2017. The new legislation effectively repeals the individual mandate, which is essential for the proper functioning of Obamacare.

Healthcare’s Prospects Remain Undiminished

And yet, after all of the current administration’s assaults, healthcare’s prospects remain as strong as ever. Data from Standard & Poor’s shows that up to September 30, 2017, healthcare had featured as the second best performing among the 10 major sectors for half of the last decade. Further, it had held on to third place for two more years. This implies that healthcare has been among the three top performing sectors for seven out of the last 10 years. This data alone is sufficient to guide investors into making investments in the healthcare sector.

Further, we have the familiar factors of near undiminished demand, even during a downturn, and a rapidly aging population. There is no denying that healthcare isn’t among the leading prospects of sectors likely to ace fourth quarter earnings. Even so, total Q4 earnings for the sector are expected to be up 2.8% on 4.6% higher revenues.

That’s far better than the more vaunted consumer discretionary and transportation sectors, earnings for which are expected to decline by 2.6% and 1.1%, respectively during the fourth quarter. Overall, total Q4 earnings are expected to be up +9.2% from the same period last year on 7% higher revenues. (Read: JPMorgan (NYSE:JPM)'s Positive Kick-off to Bank Earnings)

Our Choices

Healthcare stocks have had a banner year, despite the continuous assault on Obamacare. However, the new administration’s approach to the healthcare industry in general has been more benign. For instance, little has been heard of the complaints about drug overpricing, an issue which both candidates touted steadily in the run up to the last Presidential elections.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Humana Inc. (NYSE:HUM) is one of the largest health care plan providers in the United States.

Humana has beaten the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 6.6%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +0.44% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Humana in the to-be-reported quarter as well.

The company is expected to report third-quarter 2017 results on Feb 7.

Centene Corporation (NYSE:CNC) is a well-diversified, multi-national healthcare company that primarily provides a set of services to the government sponsored healthcare programs.

Centene has beaten the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 10.6%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +0.25% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Visa in the to-be-reported quarter as well.

The company is expected to report fourth-quarter 2017 results on Feb 6.

Bioverativ Inc. (NASDAQ:BIVV) is a biotechnology company. It focuses on the discovery, research, development, and commercialization of innovative therapies for the treatment of hemophilia and other blood disorders.

Bioverativ has surpassed the Zacks Consensus Estimate for earnings for the last four consecutive quarters, with an average positive earnings surprise of 17.1%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +2.56% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Bioverativ in the to-be-reported quarter as well.

The company is expected to report fourth-quarter 2017 results on Jan 25.

Anthem, Inc. (NYSE:ANTM) is one of the largest publicly traded managed care organizations in terms of membership.

Anthem has beaten the Zacks Consensus Estimate for the last four consecutive quarters, with an average positive earnings surprise of 11.5%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +1.16% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Wal-Mart (NYSE:WMT) in the to-be-reported quarter as well.

The company is expected to report third-quarter 2017 results on Jan 31.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>