3 Top Healthcare Stocks in Michael Burry’s Portfolio

Significant investments and innovations are the key growth drivers in the healthcare space. "Big Short" investor Michael Burry has shown a keen interest in the healthcare industry over the past year, making CVS Health (CVS), McKesson (MCK), and Cardinal Health (CAH) the top three healthcare stocks in his portfolio. We think these stocks could be attractive bets now, considering their growth prospects and stable financials. Read on.

The COVID-19 pandemic has accelerated development in the healthcare industry, with companies involved in the diagnostic-testing supply chain being major beneficiaries. However, with the pandemic far from over, strong demand for vigorous testing and vaccination along with large-scale government investment in the sector should drive the industry’s growth.

The bullish investor sentiment surrounding this industry is reflected in Big Short investor Michael Burry’s portfolio. The Burry-led Scion Asset Management firm has a $43.8 million stake in CVS Health Corporation (CVS) shares. He has increased his stake in CVS by 32% sequentially in the second quarter of 2021.

McKesson Corporation (MCK) is a new addition to the portfolio. Burry owned 682,400 shares in MCK at the end of the second quarter of 2021, representing a 6.26% weighting in  the portfolio and worth $130 million. The firm also holds $48.9 million worth of shares in Cardinal Health, Inc. (CAH), representing 2.35% of the firm’s portfolio.

These fundamentally sound stocks with solid growth prospects could be valuable additions to your portfolio.

Click here to checkout our Healthcare Sector Report for 2021

CVS Health Corporation (CVS)

CVS is a health services company operating through four segments: Pharmacy Services, Retail/LTC, Health Care Benefits, and Corporate/Other. It is headquartered in Woonsocket, R.I.

On August 30, CVS announced the opening of the first MinuteClinic locations in Washington. MinuteClinic is a walk-in medical clinic inside CVS Pharmacy stores that provides high-quality, affordable care for a wide variety of acute, wellness, and chronic disease care without the requirement of any prior appointment. Earlier in August, the company announced an innovative health care solution, Aetna Virtual Primary Care, that reimagines the primary care experience and makes it easier for people to get health services anytime, anywhere. This demonstrates the company’s unprecedented focus on innovations and its ability to provide enhanced services.

For its  fiscal second quarter, ended June 30, CVS’s total revenues increased 11.1% year-over-year to $72.62 billion. Its product revenues stood at $50.53 billion, up 9% from the same period last year. In addition, its revenue from services grew 50.3% from its  year-ago value to $2.82 billion.

A $70.22 billion consensus revenue estimate for the fiscal third quarter (ending September 2021) indicates a 5.3% increase year-over-year. The Street expects the company’s EPS to rise 7.2% from the prior-year quarter to $1.78 in the current quarter. Also, CVS beat the consensus EPS estimates in each of the trailing four quarters.

Over the past six months, CVS has gained 26.8% in price to close yesterday’s trading session at $86.39. The stock has gained 39.1% over the past year.

The stock has an overall A rating, translating to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CVS has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #1 among the six stocks in the Medical - Drug Stores industry.

Click here to view additional CVS Ratings for Momentum and Quality.

McKesson Corporation (MCK)

MCK provides healthcare supply chain management, retail pharmacy, community oncology and specialty care, and healthcare information solutions in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions and Prescription Technology Solutions (RxTS). MCK is headquartered in San Francisco.

On July 23, MCK declared a regular dividend of $0.47 per share of common stock representing a 12% increase from $0.42 per share in the prior quarter. The dividend is payable on October 1.

MCK’s revenues increased 13% year-over-year to $62.67 billion in its  fiscal first quarter, ended June 30. The rise in revenue was driven primarily by growth in its  U.S. Pharmaceutical segment, due to higher volumes from retail national account customers and market growth. Also, its income from continuing operations grew 10% from its year-ago value to $489 million, while its adjusted earnings improved 94% year-over-year to $880 million. The company’s adjusted EPS increased 101% year-over-year to $5.56.

Analysts expect MCK’s revenues to increase 6% year-over-year to $252.58 billion in the current year. The $20.28 consensus EPS estimate for the current year indicates a 17.8% rise from the last year. MCK surpassed the Street’s EPS estimates in each of the trailing four quarters. Shares of MCK have gained 30.7% in price over the past year and 15.7% year-to-date.

It is no surprise that MCK has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, the stock has a B grade for Growth, Value, Stability, and Sentiment. Among the 82 stocks in the Medical - Services industry, MCK is ranked #4.

To see additional MCK ratings for Quality and Momentum, click here.

Click here to checkout our Healthcare Sector Report for 2021

Cardinal Health, Inc. (CAH)

CAH operates as an integrated healthcare services and products company in the United States, Canada, Europe, Asia, and internationally. The Dublin, Ohio-based company operates in two segments, Pharmaceutical and Medical.

On August 11, CAH announced the extension of its agreements with CVS Health to distribute pharmaceuticals to retail pharmacies and distribution centers through June 30, 2027. The agreement is expected to continue to generate a stream of earnings for the company over the period.

In the same month, CAH announced its partnership with Abbott Laboratories (ABT) and Quidel Corporation (QDEL) to commercialize and broaden access to over-the-counter rapid COVID-19 tests. Given the resurgence of the COVID-19 cases, this move should be widely in demand.

CAH’s revenues increased 16% year-over-year to $42.59 billion in its fiscal fourth quarter, ended June 30. Its net cash flow from operating activities grew 177.1% from its  year-ago value to $665 million. CAH’s cash and cash equivalents balance came in at $3.41 billion, indicating a 23% rise year-over-year.

The Street expects CAH’s revenues to rise 6.2% year-over-year to $162.47 billion in the current year. The $5.99 consensus EPS estimate for the current year indicates a 9.9% improvement year-over-year. In addition, CAH has a notable earnings surprise history; it beat the consensus EPS estimates in three out of the trailing four quarters. Shares of CAH gained 1.9% in price intraday to close yesterday’s trading session at $52.49.

CAH has an overall B rating, which equates to Buy in our POWR Ratings system. In addition, the stock has a grade of B for Growth and Value. It is ranked #10 in the Medical - Services industry.

Beyond what we’ve stated above, we have also rated CAH for Momentum, Sentiment, Quality, and Stability. Click here to view all CAH ratings.

Click here to checkout our Healthcare Sector Report for 2021

CVS shares were trading at $85.56 per share on Wednesday afternoon, down $0.83 (-0.96%). Year-to-date, CVS has gained 27.71%, versus a 21.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.


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