The COVID-19 outbreak has pushed shares of at least three
terrific businesses down to bargain prices.
Investors worried the ongoing coronavirus
outbreak will become a made-for-reality version of Contagion have
hammered stocks across the board. The market probably isn't finished
panicking, but once the dust settles, investors will see that COVID-19 isn't
going to stop CVS Health (NYSE:CVS), LHC Group (NASDAQ:LHCG), and Chemed (NYSE:CHE) from growing their bottom lines.
The way healthcare gets delivered is changing in
more ways than one, and these are the companies leading the charge. Here's why
their shares have a solid chance to deliver market-beating gains in the years
ahead.
1. LHC Group: House
calls are back
Smartwatches and tiny new medical devices make
it easier than ever to monitor patients from a distance without keeping them in
an expensive hospital bed. LHC Group provides care and hospice services that
allow people to remain comfortably at home while traveling providers check in
from time to time.
Doctor's offices full of sick people are great
places to spread infections like SARS-CoV-2. The virus that causes potentially
lethal COVID-19 infections can live for days on countertops and other surfaces
that catch a lot of coughs and sneezes. Fear of COVID-19 transmission could go
a long way to remind insurers and their customers to make use of LHC's home
care services whenever possible.
LHC Group employs 32,000 healthcare
professionals that make housecalls in 36 states, and that figure's rising along
with profits. In 2019, adjusted earnings rose 26% year over year to $4.47 per
share.
In 2020, LHC Group will continue buying regional
home-based healthcare providers, and there are a lot to choose from in the
still highly fragmented industry.
2. Chemed:
Hospice nurses and plumbers
Back in 2003, Chemed acquired Vitas, a company
that currently employs around 4,800 nurses who provide around 7% of all hospice
services performed in the United States. In the fourth quarter, Chemed reported
5.4% new admissions that drove patient revenue 11% higher than during the
previous year period.
Chemed also owns Roto-Rooter, the single largest
provider of plumbing and drain cleaning services in North America. If you
switch patients to pipes and nurses to plumbers, the rest of their operations
are fairly similar.
Both of Chemed's segments are highly profitable
and becoming increasingly so. Over the past 16 years, Adjusted earnings from
Vitas climbed at a 14.1% annual growth rate, and Roto-Rooter did slightly
better. Growth has accelerated in recent years, and there's plenty of room to
continue expanding for both segments.
3. CVS Health:
Dividend payer
Merging a retail pharmacy operation with a pharmacy benefits
management business helped
CVS Health deliver one of the healthcare sector's fastest-growing dividend and
the company has what it takes to do it again.
Merging its retail and pharmacy benefits
businesses with Aetna, one of the nation's largest health insurers is making
CVS Health one of the more profitable members of the healthcare sector. In
2019, the company reported a whopping $10.4 billion in free cash flow, which is
quickly reducing debt taken on to complete the Aetna acquisition.
A prolonged and severe outbreak might not do
wonders for CVS Health's retail operation, but that isn't going to slow down
Aetna or its pharmacy services business.
At the moment, the CVS Health dividend offers a
3.4% yield that could begin climbing rapidly again. In 2019, the company used
just 25% of free cash flow to meet its dividend obligation which means there
should be plenty of room for big payout bumps in 2021 and beyond.
Play it cool
It's hard to think about long-term gains when a scary new virus causes the entire
stock market to take a dive. When the stock market wobbles from uncertainty,
it's important to remember that stocks attached to great businesses like CVS
Health are susceptible to panic selling, too.
Chemed and LHC Group are producing positive cash
flows while they rapidly consolidate a home healthcare market that's still
highly fragmented. While telemedicine's getting more attention, any options that
keep patients out of crowded office waiting rooms will probably receive more
attention.
Cory Renauer has no position in any of the stocks mentioned. The Motley
Fool owns shares of LHC Group. The Motley Fool recommends CVS Health. The
Motley Fool has a disclosure policy.
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