As Mr. Valuation, I find myself constantly reminding investors that value investing requires patience. However, value investing also requires the willingness to get your money in front of attractive valuation when it is discovered. Trying to time your purchases perfectly can just as easily cause you to miss out on significant gains as it is to participate in them. More directly stated, significant undervaluation can stimulate strong pent-up demand causing stock prices to rise rapidly. Therefore, if you are not already in front of those advances, you can miss out on a lot of profit and opportunity.
Furthermore, it is also common that the most attractive valuations can be found in a specific out-of-favor industry. Healthcare is one example of a sector that has been out-of-favor primarily predicated on healthcare reform risk based on politics. Consequently, the recent election results (or lack thereof) have been very favorable to healthcare in general and several subsectors more specifically. The reason is simple, the threat of significant healthcare reform has become much less likely because it appears that the GOP will retain a majority in the Senate resulting in diminishing the Democrats’ power to revamp US healthcare.
It was this threat of healthcare reform that have caused several high-quality healthcare companies primarily in biotechnology, pharmaceuticals, managed-care, and healthcare services to be out-of-favor and therefore undervalued despite the fact that their fundamentals remain strong. As a result, several high-quality companies in these subsectors posted strong price advances on Wednesday, November 4. Below are a Portfolio Review representing 5 high-quality examples that I am currently long on with low P/E ratios and high earnings yields:
Five Leading Healthcare Stocks In Order Of Lowest To Highest P/E Ratios
Here is What Happens When Pent-Up Demand Meets Value
The following graphics are presented to illustrate important dichotomies between each of the following company’s price and true worth (fundamental) value. Additionally, I have repeated today’s earnings and price correlated graphic to contrast the price action that occurred over one trading day. But most importantly, I want to illustrate that these high-quality companies remain attractively valued even after yesterday’s price advances. Finally, the reader should note the consistency and the above-average growth that each of these companies has achieved historically. Later in the video I will elaborate more fully by showing these companies over longer timeframes.
AbbVie Inc. (ABBV): up $6.54 +7.43%
Even though AbbVie’s stock price rose over 7% yesterday, as you can see by the comparison of today’s graph versus yesterday’s, long-term value proposition has barely changed. Although it is too early to tell, yesterday’s price reaction might be the precursor to AbbVie moving back into alignment with its earnings and cash flow justified valuations. In other words, the stock still looks very inexpensive to me. Furthermore, even though it has been a strong performer since I received it from the Abbott Labs’ spin off, I consider it an incredibly strong performer when I measure it at fair value. Once again, I will elaborate in the video later.