When you pick individual stocks, you do so with the belief that these companies will beat the broader market on a consistent basis. You generally look to add a combination of quality growth, value, and dividend-paying stocks to your portfolio.
Alternatively, investors should also have a well-diversified portfolio of stocks across industries to minimize overall risk. The healthcare sector is an attractive one as it is largely recession-proof. Here, we analyze three stocks part of Canada’s healthcare space that should outperform the TSX in 2021 and beyond.
WELL Health Technologies (WELL)
The first company on my list is WELL Health Technologies. Shares of WELL Health have been on an absolute tear ever since its IPO in 2016. WELL stock has returned an astonishing 6,980% in the last five years which means it has turned an investment of $1,000 into $71,000 for early investors. Despite its staggering gains, WELL Health stock is down 23% from record highs, giving investors a chance to buy a quality growth stock at a lower multiple.
WELL Health views the Canadian primary healthcare system as under-digitized. According to the company’s management, the lack of modernization in this space leads to long wait times for patients and operational challenges for clinics.
The Canadian healthcare sector continues to attract significant federal spending making it ripe for disruption while creating opportunities for WELL Health which is a primary healthcare operator.
WELL Health follows an acquisition-based model. Over the years, the company has actively acquired multiple digital assets as well primary healthcare services, making it the single largest chain of primary healthcare clinics in British Columbia.
In the first quarter of 2021, WELL Health’s sales were up 150% year over year at $25.6 million due to a 345% increase in Software and Services sales. This was the second consecutive quarter where WELL reported a positive adjusted EBITDA.
In Q1, WELL announced the acquisition of CRH Medical for US$373 million. It raised over $300 million via an equity offering as well as senior debt administered by JP Morgan and a syndicate of lenders. The credit facility is around $300 million, allowing the company to keep acquiring potential targets in the future.
In 2021, CRH Medical is forecast to report sales of US$150 million. Comparatively, its EBITDA is estimated at US$60 million while free cash flow is expected to be US$40 million this year. In 2020, WELL Health’s total sales were just over $50 million so its Pro-forma revenue might be closer to $300 million following the acquisition of CRH Medical.
WELL stock is valued at a market cap of $1.38 billion. Bay Street forecasts the company to report revenue of $235 million in 2021 and $330 million in 2022. Its net income is also expected to improve from a loss per share of $0.03 in 2020 to earnings of $0.08 in 2022.
Analysts have a 12-month average target price of $11.35 for WELL stock which is 60% above the current trading price.
Northwest Healthcare (NWH-UN)
A real estate investment trust, Northwest healthcare provides investors with access to a portfolio of high-quality international healthcare and real estate infrastructure located in Canada, Europe, Brazil, Australia, and New Zealand. Northwest has a portfolio of medical office buildings, clinics, and hospitals backed by long-term inflation-indexed leases and stable occupancies.
In Q1 of 2021, Northwest reported revenue of $92.6 million as cash collections improved by 50 basis points on a sequential basis to 98.6%. The REIT ended Q1 with 186 properties spanning a total of 15.5 million square feet.
Northwest increased adjusted funds from operations by 0.5% to $0.21 in Q1 driven by accretive acquisitions, increased management fees, and growth in same-property net operating income. It has a weighted average lease expiry of 14.3 years while the REIT expanded assets under management by 16% to $7.7 billion.
Northwest also pays investors a tasty dividend yield of 6.2% making it extremely attractive to income investors.
The final stock on the list is CloudMD a health-tech company that provides SaaS-based (software-as-a-service) technology solutions to medical clinics in North America. In Q1, CloudMD reported sales of $8.8 million which was an increase of 187% year over year and 51% sequentially.
It closed five acquisitions in the March quarter that will provide the company with a foundation to scale and grow its business across Europe and North America. CloudMD expects to end 2021 with annualized revenue run rate of over $120 million and report a positive adjusted EBITDA in the second half of this year.
Bay Street expects CloudMD to grow its revenue by 488% to $88.28 million in 2021 and by $63.8% to $144.6 million in 2022. Its bottom-line is also forecast to improve from a loss of $0.11 per share in 2020 to earnings of $0.02 per share in 2022.
Analysts have a 12-month average price target of $4.18 which is 126% higher than its current trading price.