Healthcare stocks aren’t for everyone, but one way average investors can learn more about this space is by paying attention to those who make a career out of it. Kevin Kotler’s Broadfin Capital is entirely invested in healthcare stocks, and represents a good piggybacking candidate, so to speak. Interestingly, his top five positions make up roughly one-third of his $404 million equity portfolio, according to his latest 13F filing with the SEC.
Not everyone loves the hedgies, but we’re convinced that the average investor should, as our small-cap strategy beat the market by 18 percentage points a year. Let’s have a look at Mr. Kotler’s favorite stocks.
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is Broadfin Capital’s top equity holding. Kotler devotes 8.78% of his fund’s capital to the stock. The developer and marketer of generic drugs is currently yielding a 2.66% dividend, and its stock price is up 9.02% thus far this year. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s stock presently has an 8.03% ROE, compared to an industry average near the 7.5% mark. Likewise, the vertically integrated pharmaceutical producer’s ROI metric (5.29%) is on par with the peer norms (5.91%).
Recently, the company announced that one of their multiple sclerosis drugs dramatically reduced disease progression, according to results from a stage III trial. While this news may be most relevant to sufferers of the degenerative disease, it is surely a boon to investors, as well.
The second-largest holding in Kotler’s portfolio, Alkermes Plc (NASDAQ:ALKS), comprises 7.61% of the fund’s portfolio. The company, which develops, manufactures and markets medicines for the treatment of prevalent chronic diseases, recently announced the expansion of corporate operations to Ireland and the formation of a headquarters in Dublin.
The drug delivery company’s subpar ROI and ROE figures may deter some investors, but a projected 43% annual EPS growth over the next half-decade, and a 40% increase in stock price over the past year are enough to merit consideration. Indeed, the stock is up more than 230% since the 2008 market bottom. Additionally, a low long-term debt-to-equity value (0.39) should also be attractive to investors.
Making up 7.43% of the fund, Natus Medical Inc (NASDAQ:BABY) is Broadfin’s third-largest equity position. The company, which provides devices and equipment for screening, monitoring, and treatment of common ailments in newborns, has seen a 57.24% growth in sales over the past year. Additionally, the stock price is up more than 25% over the same time frame. A projected 10.84% EPS growth next year is clearly attractive to Mr. Kotler, who recently increased his position in the stock by 60%. Israel Englander and Jim Simons are a couple peer hedge funds who are also bullish on Natus, see the full list of the smart money’s interest here.
AngioDynamics, Inc. (NASDAQ:ANGO), at 5.69% of his 13F, is fund manager Kotler’s fourth-largest stake. The company has garnered recent attention as it develops its “NanoKnife,” a minimally invasive cancer treatment tool that treats tumors that are too difficult or dangerous to remove surgically. The company’s sales are up nearly 50% this quarter, and a forward P/E of 29.08 indicates shares aren’t overly expensive. Additionally, a 3.18% uptick in the price of this stock since the start of the year has been a decent reward for Broadfin Capital thus far, but there’s more potential here.
The fifth-largest stock in the hedge fund is that of specialty biopharmaceutical company Santarus, Inc. (NASDAQ:SNTS). Up 234% over the past year, the price of Santarus’s shares has been increasing exponentially as of late. Buoyed by the recent success in clinical trials of UCERIS, a drug to treat ulcerative colitis, the stock is up 60% in 2013 alone. Interestingly, Mr. Kotler, for his part, recently decreased his equity position by 56%.
For the healthcare inclined investor, Broadfin’s equity portfolio merits consideration. With his top five stock picks, Mr. Kotler has covered his bases within the industry, from a solid manufacturer of generic medications to a company developing experimental cancer treatments.
All of the stocks here, with the possible exception of Santarus—in which Brodfin has significantly decreased its stake—are set for steady growth. Angiodynamics and Natus are both poised to potentially develop breakthrough technologies to cure diseases, and thus are stocks that have the most inherent upside. Kotler appears to have cast his lot with the latter, and it’s quite possible that you may agree with him.
Disclosure: none
