Two Below-Target Healthcare Stocks With Accelerating Earnings Growth

The market continues to run higher and bargains are getting slightly harder to find. However, the healthcare sector still has a myriad of stocks with reasonable valuations. Two I like with fast growing earnings and low valuations are below.

Watson Pharmaceuticals (WPI), a specialty pharmaceutical company, engages in the development, manufacturing, marketing, sale, and distribution of generic and brand pharmaceutical products focused on urology and women?s health in the United States, western Europe, Canada, Australasia, South America, and South Africa. The company offers its products for therapeutic categories, such as central nervous system, hormones and synthetic substitutes, cardiovascular, anti-infective agents, and urology. It operates in three segments: Global Generics, Global Brands, and Distribution.” (Business description from Yahoo Finance.)

4 reasons Watson Pharmaceuticals is undervalued at $63 a share:

Watson is rapidly increasing earnings per share. WPI earned $3.42 in FY2010, is expected to post $4.61 a share in FY2011 and analysts’ project $5.83 in earnings in FY2012.

Credit Suisse has an “overweight” rating and a $80 price target on WPI and the median analysts’ price target on Watson is $76.

The company has grown earnings at a better than 20% annual clip over the past five years, but is priced at under 11 times forward earnings.

The stock has a low beta (.39), is expanding its international footprint and S&P expects 20% revenue growth in FY2012.

St. Jude Medical (STJ) develops, manufactures, and distributes cardiovascular and implantable neurostimulation medical devices worldwide. It operates in four segments: Cardiac Rhythm Management, Cardiovascular, Atrial Fibrillation, and Neuromodulation.” (Business description from Yahoo Finance.)

4 reasons STJ is a buy at $35 a share:

The stock looks like it is in the process of building a technical base at just under $35 (see chart):

St. Jude is showing consistent EPS growth. It made $3.01 per share in FY2010, should make $3.27 in FY2011 and analysts expect $3.53 in earnings in FY2012.

St. Jude is selling at the very bottom of its five year valuation range based on P/E, P/S, P/B and PCF.

The median analysts’ price target on STJ is $42.50 and S&P has a “buy” rating and a $50 price target on the stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STJ, WPI over the next 72 hours.