The corona-virus accelerated the transition of many activities to the digital arena. It’s not just buying stuff online instead of going to physical stores, but also in the field of social media, studying, meetings, etc, and companies from the digital and technological areas are expected to expand their operations dramatically in the coming years.
These include companies operating customer service and corporate communications centers, companies that develop computerized business management systems, companies offering home-based work interfaces (such as zoom), information security solutions and remote network connection security, online retailers (like Amazon, eBay, and Alibaba), developers of online shopping solutions (Shopify, PayPal), website building tools (Wix), cloud storage companies (Amazon, Microsoft, Google) and of course social networks (Facebook and Twitter).
Healthcare companies are also expected to grow dramatically in the near future, as we all understand the importance to increase research and development budgets to find cures to Corona and many other diseases that are still out there.
Not surprisingly, shares of companies from these industries have soared significantly in recent months, and many of them are already above the price level of the Corona outbreak. However, most technological stocks went to the roof and are traded at very high valuations, while many health care stocks are still traded at valuations similar to the average multipliers in the broad market. Thus, this could be a smart point to grab a promising health care stock.
The question is which health care company should you choose?
Nowadays, the leading candidates in the sector would probably be those who participate in the race to develop vaccines and discover effective treatments against the coronavirus, which has infected more than 4 million people worldwide in just four months.
Developing a vaccine could take at least a year to 18 months, thus the most promising companies for the near future are those that develop the cure for the virus. Among them are Regeneron and Sanofi, which are in clinical trials of their Kevzara drug, which seems to contribute to the lung inflammation in patients with the most severe forms of Covid-19.
Eli Lilly is also testing a COVID experimental drug called Baricitinib. The company theorizes that baricitinib’s anti-inflammatory effects could curb the body’s reaction to the virus.
Both drugs are still at early clinical trials, so the only drug that was approved for corona treatment by the Food and Drug Administration is Gilead Sciences’ drug remdesivir, which is my favorite health care stock today.
Why invest in Gilead?
At $90 billion, Gilead (GILD) is not surprisingly the most high-profile name in the race for a coronavirus treatment, as it has an impressive track-record with treating viral infections such as HIV and Hepatitis C. For coronavirus, Gilead is leveraging its wide-spectrum anti-viral drug Remdesivir, which was initially developed for Ebola. Late-stage human trials are ongoing in China, Asia, and the U.S., and Gilead is expected to provide clinical updates on the drug in the coming weeks. If it works, the stock will obviously skyrocket, but it should continue climbing even if it doesn’t.
The company grew its revenue by 5% in the first quarter of 2020, in line with analysts’ expectations, and strengthened its strategic partnership with Galapagos, which increases its footprint in the immunology field. The company awaits U.S. and European regulatory approvals for filgotinib in treating rheumatoid arthritis.
Gilead is also likely to become an even bigger player in the oncology market, and revenues from its cancer cell therapy – Yescarta, grew a whopping 46% in Q1 2020.
At only 10.7 non-GAAP price-to-earnings, it seems that the growth potential of Gilead’s COVID-19, HIV, immunology, and oncology programs are not correctly valued. Buying GILD shares you also get an annual dividend of 3.7%, the highest yield in the health care sector.
The bottom line
Surely there are many good stocks out there and clearly not all of them can make it to the portfolio; GILD is not an official portfolio recommendation, but if you want an exposure to the health care industry which has a strong potential to climb in the next few years, than GILD is probably the stock to choose.