The fundamentals are good for the health care sector in general.  Recent news articles on drug pricing/gouging are not likely to effect meaningful change for the overall group dynamics in my opinion or that any changes may be long time in coming and tempered far below market expectations.

It’s true that it may compress multiple prices for a while as Evercore #1 ranked biotech analyst Mark Schoenebaum said on CNBC today but I agree with him, its really about innovation.  His favorite picks are Gilead GILD and maintains a price target of $115 on the stock.  I am not as enthusiastic about GILD as it is over-owned and insiders have been unloading lots and lots of shares recently even at these depressed levels.

The most compelling of his picks in my opinion is Biogen BIIB.  Long-term, he’s bullish on Biogen, which makes therapies for people living with neurological, autoimmune and hematologic disorders.

“It makes a lot of sense here. The upside-downside ratio is 5:1 over a two year period.”he said.  Biogen has also had significant insider buying, Chairman Papadopolous bought $3 million at $304.88 back at the end of July.  Biogen closed at $279.24 on Wednesday.

In the pharmaceutical space, his top picks are Pfizer and Abbvie, two leading players with “underappreciated” research and development pipelines.  Abbvie is yielding 3.60% and according to JP Morgan has 38% upside.

Certainly the name that has garnered the most controversy lately about price gouging is Valient Pharmaceuticals, VRX which Bill Ackman has amassed a massive multi billion dollar stake and professed it to be the Berkshire Hathaway of the future.  It’s down 27% and Ackman was quoted yesterday at an investment conference saying “if we had to pick one stock that was the most undervalued, it is Valient”.  Valiant has had massive insider buying at far higher prices.  It’s a compelling story that will reverberate a long time.  Valiant buys proven drugs and proceeds to lay off much of the R&D from acquired companies.  JP Morgan highly rated analyst Chris Schott projects 54% upside from these levels.

I also like Amgen, AMGN with its 2.2% dividend yield and reasonable P.E. multiple of 13.8 on next year’s earnings estimates.