Janus Fund (JANDX) bares the name of the fund family behind it. The flagship offering focuses on growth. Three healthcare stocks that underperformed for the fund in 2012 still appear to have growth potential.
Growth
Janus Fund focuses on growth. In its search for companies with “earnings growth potential that may not be recognized by the market at large,” management starts at the ground floor. Building its research and portfolio from the “bottom up.” So each stock in the fund has undergone a thorough review.
In 2012, healthcare was the one sector that management pointed out as a notable trouble spot. Although its selections in the space lagged, it still believes a few holdings have notable prospects. Here are three that were still around at the end of February:
The Middle Man
Express Scripts Holding Company (NASDAQ:ESRX) shares took a nose dive toward the end of 2012 and have not yet recovered. The fund’s managers attribute the fall to the fact that the “company’s CEO said consensus expectations for earnings growth were too aggressive.” That’s a pretty obvious one, since telling the market that you aren’t going to live up to its expectations is generally frowned upon.
However, just because a company doesn’t do what the market expects in the near-term, doesn’t mean its long-term outlook is tarnished. Janus, for one, hasn’t changed its view of the company. In fact, the sell off could be a pretty good buying opportunity.
“We believe that pharmacy benefit managers (PBMs) will enjoy revenue and margin expansion as a result of growing prescription drug spending, the wave of new generic drugs and the growth in specialty drug use.” As the largest player in the space, all of the benefits that Janus Fund’s management expects will likely flow disproportionately to Express Scripts Holding Company (NASDAQ:ESRX) and its shareholders.
Going Private
Perrigo Company (NASDAQ:PRGO) has a lot of operational risk at the moment. The company has been on something of an acquisition binge, buying several companies in a relatively short span. That means that integration issues are occupying top management and will be a key focus for the market if any problems trickle onto the top and bottom lines.
However, the company has a pretty unique niche. It’s the largest U.S. manufacturer of private-label over-the-counter drugs. There are two factors bolstering this area over the long term. Perrigo Company (NASDAQ:PRGO)’s direct customers, pharmacies, earn larger margins on private-label drugs than they do from third party offerings. So, there is a clear reason for them to expand their presence in this space.
Also, private-label products tend to be cheaper than their branded alternatives. Thus, customers have a clear reason to buy more of these products. This is particularly true when times are tough, like right now.
Assuming that the acquisitions work out, they could provide an additional boost. For example, the company recently entered the infant formula and pet food spaces. Both could be solid, though perhaps not spectacular, growth engines. And Perrigo Company (NASDAQ:PRGO) is building up its branded drug business, too. All in all, there’s good reason to expect growth in this niche operator’s top and bottom lines.
Cystic Fibrosis
Vertex Pharmaceuticals (NASDAQ:VRTX) is probably the highest risk of the three stocks here. In 2011, the company’s Incivek was approved in The United States and abroad for the treatment of hepatitis C. That led to a massive revenue jump. This is the company’s main drug, accounting for 87% of sales in 2012.
However, it isn’t alone in the market and competition is fierce. In fact, the company expects sales of this drug to decline in the future. That means it has to come up with new drugs. Janus likes the company “for its cystic fibrosis drug, which is the only drug to treat the underlying cause of the disease.”
Although not a big seller today, it is only being used on a “subset of cystic fibrosis patients.” If its use expands, the drug could quickly turn into an important top- and bottom-line contributor. If that happens, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) shares could see a nice price advance.
Healthcare Opportunities
Healthcare is going to be an increasingly important aspect of life as the baby boom generation hits its peak medical expense years. All three of the above companies have unique situations that could help them benefit over the long term, despite price weakness in 2012. Growth minded investors should take a look at each.
The article 3 Healthcare Picks From Janus Fund originally appeared on Fool.com.
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