4 Healthcare Stocks to Play Safe as Fed Gears Up for Rate Hike

Inflation climbed again in August, after easing marginally over the past two months. The latest consumer price index (CPI) print released on Friday shows that the Federal Reserve has ample reasons to go for a rate hike after its September policy meeting next week.

Consumers are already struggling to pay as prices of goods and services are increasing. Oil prices have been on the rise again as tensions in the Middle East continue, pushing inflation even higher.

Markets have remained volatile for over three months now, and a rate hike is likely to make spending tougher for consumers. Given this scenario, we recommend buying four defensive stocks from the healthcare sector, namely, Amgen Inc. AMGN, Bausch Health Companies Inc. BHC, CareDx, Inc. CDNA and Centene Corporation CNC.

Inflation Continues to Climb

The CPI increased 0.4% sequentially in August, which came in line with analysts’ expectations, the Bureau of Labor Statistics said on Friday. The annual CPI rate came in at 3.4%, also in line with the consensus estimate.

Core CPI, which strips out the volatile food and energy, rose 0.3% sequentially in August, higher than the consensus estimate of a rise of 0.2%. Year over year, core CPI increased 2.4%, in line with economists’ expectations.

Although the readings matched the forecasts, inflation remained stubbornly high last month. Food prices rose 0.1% sequentially in August and 2.7% from the year-ago levels. Oil prices have primarily been responsible for the steep jump in inflation over the past few months.

As the United States and Iran continue to engage in attacks and counterattacks in the Middle East, consumers fear that tensions could continue for a prolonged period, which could push inflation higher.

Gasoline prices rose 3.9% in August, accounting for one-third of the CPI index’s rise. Year over year, energy prices are up 16.3%. Gasoline prices and fuel oil jumped 27.4% and 52%, respectively, from the year-ago levels.

The latest CPI print will be the final major inflation report the Federal Reserve will consider before its FOMC policy meeting next week. The central bank has struggled to tame inflation but has kept interest rates unchanged this year, in its current range of 3.5% to 3.75%.

However, a rate hike is now the only option left for the Federal Reserve to counter the challenge. Markets are pricing in a 90% chance of a quarter-percentage-point rate hike next week, according to the CME FedWatch tool.

4 Healthcare Stocks With Upside

Amgen

Amgen Inc. is one of the biggest biotech companies in the world, with a strong presence in the oncology, general medicine, inflammation and rare diseases markets. AMGN used advances in cellular and molecular biology to develop two of the biotech industry’s earliest and most successful drugs, Epogen (anemia) and Neupogen (white blood cell stimulant). Amgen successfully launched two next-generation products, Aranesp and Neulasta.

Amgen has an expected earnings growth rate of 5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. AMGN currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bausch Health Companies

Bausch Health Companies Inc. is a global, diversified specialty pharmaceutical and medical device company focused on developing, manufacturing and marketing products across key therapeutic areas such as gastroenterology, hepatology, neurology and dermatology. BHC’s portfolio includes branded and generic drugs, branded generics, over-the-counter (OTC) products and aesthetic medical devices.

Bausch Health Companies has an expected earnings growth rate of 16.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.4% over the past 60 days. BHC currently carries a Zacks Rank #2.

CareDx

CareDx, Inc. develops, markets and delivers a diagnostic surveillance solution for heart transplant recipients. CDNA provides AlloMap, a noninvasive blood test used to aid in the identification of heart transplant recipients. It is also pursuing other areas of transplant surveillance, such as the use of cell-free DNA as a biomarker for rejection.

CareDx’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 35.2% over the past 60 days. Currently, CDNA has a Zacks Rank #1.

Centene Corporation

Centene Corporation is a well-diversified healthcare company that primarily provides a set of services to government-sponsored healthcare programs, while serving underinsured and uninsured individuals through member-focused services. CNC is also engaged in providing education and outreach programs to inform and assist members in accessing quality, appropriate healthcare services. Centene operates a capitated managed-care model. Under this model, it receives a fixed payment per member per month from government programs such as Medicaid, Medicare and ACA Marketplace plans.

Centene Corporation has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 40.9% over the past 60 days. CNC currently sports a Zacks Rank #1.

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

Of course, all our elite picks aren't winners, but this one could far surpass earlier Zacks' Stocks Set to Double like D-Wave Quantum, which shot up +680.1%.

Free: See Our Top Stock And 4 Runners Up

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Amgen Inc. (AMGN): Free Stock Analysis Report

Centene Corporation (CNC): Free Stock Analysis Report

CareDx, Inc. (CDNA): Free Stock Analysis Report

Bausch Health Cos Inc. (BHC): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research