2 Healthcare Stocks Are Buys. They are far enough behind in choosing Trump RFK Jr. for HHS
We buy 25 shares of Danaher for about $229 each. After Monday's trading, Jim Cramer's Charitable Trust will own 550 DHR shares, increasing its weighting to about 3.6% from 3.4%. The healthcare sector has been the market's big loser since the election. If the SPDR Health Care Sector Fund, commonly referred to as XLV, trades lower on Monday, it would be the sixth consecutive negative session. The group is facing a major wave of uncertainty after President-elect Donald Trump named Robert F. Kennedy Jr., a vaccine skeptic and critic of obesity drugs, as his secretary at the Department of Health and Human Services. There's nothing the market hates more than uncertainty, which is why stocks can fall so sharply when political opinion is unclear. But uncertainty can also create opportunities. We never want to downplay risk – but at a certain level, a stock will be pricing in too many potential changes that may have consequences that are too severe. If what's happening in real life turns out to be better than first feared, nibbling on quality healthcare stocks at these prices could prove to be a bargain. We're not buying heavily here as the uncertainty overhang could continue for some time, but some of these stocks are oversold. That's why we turn to some healthcare stocks that have come under heavy pressure in recent weeks. Since the election, shares of Danaher have fallen from $250 to $230, while shares of Eli Lilly have fallen from $806 to $720. DHR YTD Mountain Danaher YTD Danaher reported a better-than-expected quarter with a return to growth in its bioprocessing business. Bioprocessing is the use of cell components to produce various products, including targeted therapies such as vaccines. Danaher has received many orders from vaccine manufacturers during the Covid-19 crisis. One of the reasons Danaher has come under pressure after RFK Jr.'s election is concerns about funding for the National Institutes of Health, the country's national health agency and part of HHS. But as Leerink analysts estimated in a research note on Monday, less than 1% of Danaher's revenue comes from NIH funding. The other side of Danaher's risk is that pharmaceutical companies limit their research and development due to regulatory changes. That's something to watch out for going forward, but we think Danaher stock trading at about 27 times 2025 earnings estimates reflects some of that risk. Regardless, we would be buyers of five shares of Eli Lilly stock at a price of approximately $718 each if we were not prohibited from trading. The five stocks represent half of what we sold in early September, when the stock was trading at around $960. LLY YTD-Mountain Eli Lilly YTD Eli Lilly shares fell from $903 to $846 after a disappointing third-quarter report in which destocking of its fast-selling GLP-1 drugs led the company to lower estimates missed and lowered the forecast for the full year. We were concerned about Eli Lilly's post-quarter announcements, but were encouraged in the days that followed when management reiterated to the analyst community that the miss was purely due to destocking and was not based on fundamentals or underlying demand. But RFK Jr.'s possible appointment has created a lot of uncertainty for Eli Lilly and pharmaceutical stocks as a whole. Last week we highlighted RFK Jr.'s criticism of obesity drugs, with his two main issues being pricing and his view that changes in diets and food systems are the better way to combat high obesity rates. Certainly pricing could become a bigger issue in the future, but the science and the drug's suitability for treating obesity and other conditions are beyond question. The latest correction at Eli Lilly has shares trading slightly above 30 times the FactSet consensus estimate for 2025 adjusted earnings per share of $22.52. If you look ahead to 2026, Lilly shares are trading at about 24x. Although these metrics represent a premium compared to other drug stocks, we think they are favorable given the company's peak growth, which will continue as GLP-1 supply capacity keeps pace with demand. Also note that Eli Lilly will not face any major patent cliff or IRA pricing pressures over the remainder of the decade. (Jim Cramer's Charitable Trust is Long DHR, LLY. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
