5 medical stocks experiencing triple-digit earnings growth

While most of the market focuses on hypergrowth tech stocks rewarded by Wall Street as long as they mention the word “artificial intelligence” in their earnings statements, the reality is that fundamentals now favor other (safer) areas of the economy.

Great traders and investors in places like The Goldman Sachs Group NYSE:GS and other reputable investment firms tend to employ a process called “top-down” analysis, in which fundamental trends in an industry and the economy itself are taken into account to select winning stocks. a bit.

For now, all you have to worry about is that medical stocks are becoming more and more attractive these days; names like Vericel NASDAQ: VCEL, Axsome Therapy NASDAQ:AXSMand three more worthy peers can quickly become just what these traders and investors are looking for to deploy their available investment dollars to squeeze alpha from the market.

Don’t fight the market

Following the latest quarterly trend of the ISM Services PMI reports, you will notice that the healthcare sector has halted three consecutive months of expansionary activity. This means that the chances of stocks in that space reporting higher quarterly earnings per share are high. Not only that, healthcare was the fastest growing sector in January.

The PMI is one of the first leading indicators these investors look at to generate ideas. However, it is only a fraction of the whole picture. Understanding this next indicator can also help you understand why this sector will attract all the heat in the months ahead.

Employment trends can give you another idea of ​​what the economy is doing lately, and the latest jobs report says a lot about the healthcare industry. Healthcare companies created 70.3 thousand jobs in the last month, while the entire US economy added 353 thousand; that’s almost 20% of all new hires!

Due to these warming parameters, the markets are looking at these stocks to make a decent profit. But you can’t just take the fundamental story at face value and blindly invest your money in any stock just because it operates in the sector, so here’s how you can make better choices.

Two things drive professional traders to choose stocks once the sector has been decided. First, they prefer to see positive outliers over the next twelve months in earnings per share projections; Who doesn’t like growth, right? Second, growth stocks typically have a higher valuation multiple, so you also need to see positive outliers that command premium valuations.

Know when to hold them back

Knowing what you know now, it shouldn’t be a surprise to see these competitors command higher valuations based on how explosively their earnings are set to grow. Vericel analysts expect earnings growth of up to 366.0% for the next twelve months, significantly above the industry average of 15.1%.

This is why the stock is trading at a Forward P/E ratio of 76.6x, which represents a premium of 333.0% to the industry’s average valuation of 17.7x. Even with Axsome, the story isn’t too far off, with analysts forecasting EPS growth of 130.9% next year, calling for a premium valuation of 415.0% with its forward P/E of 91.0x .

Other notable names are Argenx NASDAQ:ARGX, Azenta NASDAQ: AZTAand even Inari Medical NASDAQ: NARI. You can probably guess what all these titles have in common, right? Triple-digit EPS growth rates, premium industry valuations, and positive outliers within a rapidly heating up industry.

Argenx analysts believe the stock could grow its earnings by up to 243.0% over the next year; markets do not believe this is far from reality as they are willing to pay a 479.0% premium to the sector via its forward P/E valuation of 102.4x. These same analysts have set a stock price target of $525.9 for the stock, which still implies an upside of 33.7% from today’s prices.

Azenta brings another interesting bullish outlook from analysts, as they want to see EPS up 136.0%, a fact that traders have bid up to a 534.0% premium over the rest of the pack, willing to pay a staggering Forward P/E of 112.0x. multiple. There is an uptrend in the industry, right?

Last but not least, the most “expensive” name of the group is Inari Medical, but remember the saying: “It has to be expensive for a reason.” The reason is, well, really simple. Analysts boldly expect earnings to rise 390.0% this year, justifying a forward P/E multiple of 199.7x; otherwise, there will be a 1,000.0% premium to the industry.

Analysts feel comfortable with these projections, as the price target has been set at $81.3 per share, showing that this name could rise 43.7% from where it trades today.

Congratulations on the top-down; the list quickly becomes significant for stocks that can quickly become trader favorites and see the right price action very soon.

Before you consider Axsome Therapeutics, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Axsome Therapeutics wasn’t on the list.

While Axsome Therapeutics currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here