Investors worried the ongoing coronavirus outbreak will become a made-for-reality version of Contagion have hammered stocks across the board. The market probably isn't finished panicking, but once the dust settles, investors will see that COVID-19 isn't going to stop CVS Health (CVS -0.96%), LHC Group (LHCG), and Chemed (CHE 0.03%) from growing their bottom lines.
The way healthcare gets delivered is changing in more ways than one, and these are the companies leading the charge. Here's why their shares have a solid chance to deliver market-beating gains in the years ahead.
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1. LHC Group: House calls are back
Smartwatches and tiny new medical devices make it easier than ever to monitor patients from a distance without keeping them in an expensive hospital bed. LHC Group provides care and hospice services that allow people to remain comfortably at home while traveling providers check in from time to time.
Doctor's offices full of sick people are great places to spread infections like SARS-CoV-2. The virus that causes potentially lethal COVID-19 infections can live for days on countertops and other surfaces that catch a lot of coughs and sneezes. Fear of COVID-19 transmission could go a long way to remind insurers and their customers to make use of LHC's home care services whenever possible.
LHC Group employs 32,000 healthcare professionals that make housecalls in 36 states, and that figure's rising along with profits. In 2019, adjusted earnings rose 26% year over year to $4.47 per share.
In 2020, LHC Group will continue buying regional home-based healthcare providers, and there are a lot to choose from in the still highly fragmented industry.
2. Chemed: Hospice nurses and plumbers
Back in 2003, Chemed acquired Vitas, a company that currently employs around 4,800 nurses who provide around 7% of all hospice services performed in the United States. In the fourth quarter, Chemed reported 5.4% new admissions that drove patient revenue 11% higher than during the previous year period.
Chemed also owns Roto-Rooter, the single largest provider of plumbing and drain cleaning services in North America. If you switch patients to pipes and nurses to plumbers, the rest of their operations are fairly similar.
Both of Chemed's segments are highly profitable and becoming increasingly so. Over the past 16 years, Adjusted earnings from Vitas climbed at a 14.1% annual growth rate, and Roto-Rooter did slightly better. Growth has accelerated in recent years, and there's plenty of room to continue expanding for both segments.
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3. CVS Health: Dividend payer
Merging a retail pharmacy operation with a pharmacy benefits management business helped CVS Health deliver one of the healthcare sector's fastest-growing dividend and the company has what it takes to do it again.
Merging its retail and pharmacy benefits businesses with Aetna, one of the nation's largest health insurers is making CVS Health one of the more profitable members of the healthcare sector. In 2019, the company reported a whopping $10.4 billion in free cash flow, which is quickly reducing debt taken on to complete the Aetna acquisition.
A prolonged and severe outbreak might not do wonders for CVS Health's retail operation, but that isn't going to slow down Aetna or its pharmacy services business.
At the moment, the CVS Health dividend offers a 3.4% yield that could begin climbing rapidly again. In 2019, the company used just 25% of free cash flow to meet its dividend obligation which means there should be plenty of room for big payout bumps in 2021 and beyond.
Play it cool
It's hard to think about long-term gains when a scary new virus causes the entire stock market to take a dive. When the stock market wobbles from uncertainty, it's important to remember that stocks attached to great businesses like CVS Health are susceptible to panic selling, too.
Chemed and LHC Group are producing positive cash flows while they rapidly consolidate a home healthcare market that's still highly fragmented. While telemedicine's getting more attention, any options that keep patients out of crowded office waiting rooms will probably receive more attention.
