You don't have to see the financial statistics to know healthcare represents a huge part of the U.S. economy. It's an enormous part of the global economy, too. And healthcare continues to be one of the fastest-growing sectors.
Aging demographic trends across the world should fuel sustained growth for many healthcare companies for decades to come. This growth potential should be attractive to investors seeking long-term profits. While some investors might opt to buy smaller healthcare stocks, many prefer the stability of large-cap healthcare stocks.
The 10 biggest healthcare stocks together generate close to $600 billion in annual revenue. Here's what you'll want to know about the biggest healthcare stocks on the market right now.
Image source: Getty Images.
The wide scope of healthcare
The healthcare sector includes a wide range of businesses. These businesses fall into two main categories:
- Healthcare equipment and services
- Pharmaceuticals, biotechnology, and life sciences
Healthcare equipment and services is a pretty broad category. It includes companies that make medical devices and medical supplies. Healthcare providers such as hospitals, home healthcare companies, physician clinics, and skilled nursing facilities also fall under the category's umbrella. Health insurers also fit into the category.
Drugmakers, from big pharma companies to tiny biotechs, are included in the second main category. In addition, companies that provide tools and services to the life sciences industry fall into this category.
Some companies that haven't traditionally been viewed as healthcare companies are building a presence in the healthcare space. Google parent Alphabet, for example, has formed subsidiaries specifically focused on developing healthcare products. But because companies like Alphabet don't primarily focus on healthcare, they're not categorized as healthcare stocks in our ranking.
What are the biggest healthcare stocks in 2019?
Only companies with market caps of at least $110 billion earn a spot among the 10 biggest healthcare stocks on the market right now. Companies focused on pharmaceuticals occupy 6 of the top 10 spots, with a handful of medical device makers and one health insurance giant rounding out the list.
|1. Johnson & Johnson (NYSE: JNJ)||$372 billion||Pharmaceuticals, consumer health, and medical devices|
|2. Pfizer (NYSE: PFE)||$246 billion||Pharmaceuticals|
|3. UnitedHealth Group (NYSE: UNH)||$232 billion||Health insurance|
|4. Merck (NYSE: MRK)||$220 billion||Pharmaceuticals|
|5. Novartis (NYSE: NVS)||$212 billion||Pharmaceuticals|
|6. Abbott Laboratories (NYSE: ABT)||$150 billion||Medical devices, diagnostics, and pharmaceuticals|
|7. Medtronic (NYSE: MDT)||$132 billion||Medical devices|
|8. Thermo Fisher Scientific (NYSE: TMO)||$120 billion||Medical devices|
|9. Amgen (NASDAQ: AMGN)||$114 billion||Pharmaceuticals|
|10. Eli Lilly (NYSE: LLY)||$111 billion||Pharmaceuticals|
Data sources: Yahoo! Finance and company regulatory filings. All market caps as of July 2, 2019.
Here's what you need to know about each of these big healthcare stocks.
1. Johnson & Johnson
Johnson & Johnson ranks as the biggest healthcare stock by far. It owns more than 260 operating companies across the world organized into three business segments: consumer, pharmaceutical, and medical devices. The latter two each generate more revenue annually than several of the other healthcare stocks on our list.
J&J's biggest growth driver is its pharmaceutical segment. In 2018, 11 drugs generated sales of more than $1 billion, including Imbruvica, a cancer drug J&J co-markets with AbbVie. Imbruvica is predicted to be the fifth-biggest blockbuster drug in the world by 2024, according to EvaluatePharma. In addition to Imbruvica, there's multiple myeloma drug Darzalex, immunology drugs Stelara and Tremfya, and pulmonary hypertension drug Uptravi.
J&J's medical devices segment is the healthcare giant's second-biggest moneymaker. This segment markets a wide range of products, including contact lenses, diabetes care products, hip and knee replacement implants, and surgical instruments and systems.
Although Johnson & Johnson's consumer segment generates lower revenue than the company's other segments, it markets products that have made J&J a household name. These products include Band-Aid bandages, Benadryl and Zyrtec allergy medications, Listerine oral care products, Motrin and Tylenol pain relievers, and beauty brands Aveeno and Neutrogena.
Pfizer comes in at a relatively distant No. 2 position behind Johnson & Johnson. However, Pfizer's pharmaceutical focus makes it the largest drugmaker in the world. The company is organized into two business segments: innovative health and essential health.
Innovative health focuses on developing and commercializing novel medicines and vaccines in the branded prescription drug market, as well as products for consumer healthcare.
The company's current lineup includes 10 products that delivered sales of at least $1 billion in 2018. Pfizer's top-selling product is its Prevnar 13 pneumococcal vaccine. The drugs generating the fastest growth for the company include anticoagulant Eliquis (which Pfizer co-markets with Bristol-Myers Squibb), breast cancer drug Ibrance, and immunology drug Xeljanz.
Pfizer's essential health segment includes several different business units. The segment's biggest focus is on older brands that have lost or will soon lose market exclusivity. The essential health segment also markets generic drugs and sterile injectable products, biosimilars, and some branded products such as anti-infectives.
3. UnitedHealth Group
While UnitedHealth Group is the third-largest healthcare stock, it's also the world's largest health insurer. The company has four business segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx.
The company's health insurance segment, UnitedHealthcare, generates 80% of UnitedHealth Group's total revenue and nearly half its total earnings. This segment sells products in the individual and group health insurance markets as well as offering Medicare Advantage, Medicare supplement (also known as Medigap), Medicare Part D, and Medicaid managed care plans.
But UnitedHealth Group's OptumHealth segment is delivering the fastest revenue growth for the company. OptumHealth offers population health services including consumer preventive care and health intervention programs. It also operates a financial services business that manages health savings accounts and processes digital medical payments to healthcare providers.
OptumInsight provides healthcare technology consulting and services including population health and risk analytics, claims editing technology, and revenue cycle management solutions.
The company's OptumRx segment ranks as one of the largest pharmacy benefits managers (PBMs) in the world. OptumRx manages a network of more than 67,000 retail pharmacies plus home delivery, specialty, and compounding pharmacies (which create particular pharmaceutical products to fit the unique needs of patients).
Merck focuses primarily on developing prescription drugs and vaccines. However, it also runs a multibillion-dollar animal health business.
The company's pharmaceutical segment contributes nearly 90% of Merck's total revenue. Cancer immunotherapy Keytruda is by far the top product for the segment. The drug appears to be on track to become the world's biggest blockbuster over the next few years.
Merck's current product lineup also includes five other blockbuster products: diabetes drug Januvia, vaccines Gardasil and ProQuad/M-M-R II/Varivax, cardiovascular drug Zetia, and HIV drug Isentress. In addition, Merck has several other approved drugs that could make $1 billion or more annually within the next few years.
The company's animal health segment markets products for livestock and pets. Livestock products include antibiotics and vaccines for cattle, swine, and fish. Merck's pet products include flea and tick treatments, diabetes drugs, and vaccines for dogs and cats, as well as fertility drugs and vaccines for horses.
Swiss healthcare giant Novartis had three business segments until April 2019. The company's spin-off of its Alcon eye-care business into a stand-alone entity left Novartis with two segments: innovative medicines and Sandoz.
Novartis' innovative medicines segment focuses on developing and marketing branded prescription medicines. This segment claims 15 drugs that were blockbusters in 2018, including multiple sclerosis drug Gilenya, immunology drug Cosentyx, and age-related macular degeneration (AMD) drug Lucentis.
More blockbusters could be on the way. Myelofibrosis drug Jakafi came close to raking in $1 billion in 2018 and should exceed the sales level in 2019. Zolgensma, the gene therapy Novartis picked up with its acquisition of AveXis that carries a price tag of $2.1 million, is also likely to become a blockbuster success over the next few years.
Novartis' Sandoz division specializes in generic drugs, anti-infectives, and biosimilars. Sandoz partnered with Canadian cannabis producer Tilray to develop and market medical cannabis products for sale in global markets.
6. Abbott Laboratories
Abbott Laboratories would have ranked even higher on this list of the biggest healthcare stocks a few years ago. In 2013, the company spun off AbbVie as a stand-alone business. AbbVie nearly made the top 10 list of biggest healthcare stocks itself.
Today, Abbott Labs operates its business in four segments: established pharmaceutical products, diagnostic products, nutritional products, and cardiovascular and neuromodulation products. The largest by revenue is the cardiovascular and neuromodulation products segment, which includes rhythm management, electrophysiology, heart failure, and structural heart devices along with neuromodulation devices for managing chronic pain and movement disorders.
Abbott's diagnostic segment is its second largest, making most of its money from selling core laboratory systems, including its Alinity line of lab instruments and assays used for screening and diagnosing various diseases, and from marketing rapid diagnostics products for respiratory illnesses, HIV, and tropical diseases.
The company's nutritional segment isn't too far behind the diagnostic segment in total revenue. The segment markets a variety of products, including Similac infant formula and Ensure and PediaSure nutrition shakes.
Abbott's established pharmaceuticals products segment sells a broad line of branded generic drugs including anti-inflammatory pain reliever Brufen and pancreatic enzyme replacement therapy Creon.
One of Abbott's biggest winners isn't included in any of these segments. Sales continue to soar for the company's Freestyle Libre continuous glucose monitoring (CGM) system, jumping 70% year over year to $379 million in the first quarter of 2019. Freestyle Libre's success makes Abbott one of the top companies in the diabetes care market, although several other companies also offer CGM systems.
Medtronic is one of the largest medical technology companies in the world. The company has four business segments: cardiac and vascular, minimally invasive therapies, restorative therapies, and diabetes.
Around 38% of Medtronic's total revenue is generated by its cardiac and vascular segment. This segment develops and sells products including pacemakers, cardiac monitoring systems, heart stents, aortic valves, and angioplasty balloons.
Minimally invasive therapies is Medtronic's second most lucrative segment, marketing products including surgical staples, meshes used in hernia repair, gastrointestinal ablation systems, and catheters used in dialysis.
Medtronic's restorative therapies segment is third in terms of revenue generation. This segment sells products including bone grafts, plates and spacers used to treat spine issues, and neurostimulators. Thanks to the company's acquisition in 2018 of Mazor Robotics, Medtronic is also a leader in robotic surgical systems.
The company's diabetes segment develops and markets products for managing type 1 and type 2 diabetes. Top products include the MiniMed insulin pump and the Guardian Connect CGM system.
8. Thermo Fisher Scientific
Thermo Fisher Scientific is a leader in the life sciences industry. Its customer base includes more than 400,000 organizations including biotechs, government agencies, hospitals, labs, and universities. Thermo Fisher Scientific is organized into four business segments: life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and services.
The company's laboratory products and services segment contributes more than 40% of Thermo Fisher's total revenue. This segment offers nearly everything a lab might need, including freezers, centrifuges, meters, ovens, pipettes and other containers, chemicals, solvents, and reagents.
Thermo Fisher's life sciences solutions segment sells reagents, instruments, and consumables used in biological and medical research. It's also a leader in gene research with its next-generation sequencing (NGS) technology and genetic analyzers. In addition, the segment offers products and services that help drugmakers develop biologic drugs and vaccines.
The analytical instruments segment focuses on marketing instruments including chromatography and spectrometry systems, chemical production line process monitoring systems, radiation measurement systems, and electron microscopes. Thermo Fisher hoped to boost its electron microscope business by acquiring Roper Technologies subsidiary Gatan. However, the company threw in the towel on the acquisition in June 2019 because of antitrust concerns by regulators in the United Kingdom.
The company's specialty diagnostics segment sells a variety of diagnostics products, including immunodiagnostic reagent kits, drugs-of-abuse immunoassays, and analyzers and reagents used to measure glucose and cholesterol levels.
Amgen ranks as one of the 10 biggest biotech stocks on the market as well as one of the largest healthcare stocks. Unlike the other biggest healthcare companies, Amgen only has one business segment.
The company's current product lineup includes seven blockbuster drugs, but sales for several of its top-selling drugs are declining. Immunology drug Enbrel faces stiff competition in the U.S., while bone marrow stimulant Neulasta and anemia drug Epogen are losing market share to biosimilar rivals. Sales for Amgen's other anemia drug, Aranesp, are also threatened by Epogen biosimilars.
But Amgen still has several drugs for which sales continue to climb. In particular, osteoporosis drug Prolia remains a big winner for the biotech. Multiple myeloma drug Kyprolis appears to be on track to become a blockbuster. Amgen's leukemia drug Blincyto and migraine drug Aimovig (which the company co-markets with Novartis) could also generate sales of at least $1 billion in the future.
Amgen could help offset the declining sales for some of its top drugs by making acquisitions. The company generates strong free cash flow and has a big cash stockpile, providing it with ample flexibility should it decide to buy one or more smaller biotechs.
10. Eli Lilly
Eli Lilly narrowly beats out several other healthcare stocks to take the last spot in our top 10 list. The company likely would have ranked higher prior to September 2018, when it spun off Elanco Animal Health.
Eli Lilly now focuses solely on developing drugs for humans. The company is a leader in the diabetes drug market with blockbusters Trulicity, Humalog, and Humulin. Sales are growing quickly for two other diabetes drugs, Basaglar and Jardiance.
Outside of the diabetes arena, Eli Lilly's fastest-rising star is psoriasis and psoriatic arthritis drug Taltz. But Eli Lilly's oncology lineup isn't performing quite as well. Sales are rising for cancer drugs Cyramza and Verzenio. However, the company's chemotherapies Alimta and Erbitux aren't delivering much if any sales growth.
The drugmaker could have another big winner in the not-too-distant future. Eli Lilly's acquisition of Loxo Oncology in early 2019 brought Vitrakvi into its lineup. The cancer drug could bring in $1 billion annually by 2024.
Risks for these big healthcare stocks
All of these big healthcare stocks face significant risks to their businesses. The possibility that the U.S. could adopt a single-payer healthcare system poses a threat to UnitedHealth Group especially. But the other stocks on the list could also be negatively impacted if massive changes are made to the U.S. healthcare system.
Perhaps an even more likely change will be in how drugmakers set prices for their drugs. It's possible that pharmaceutical companies could have to negotiate with Medicare on drug prices or even be limited to setting U.S. drug prices based on the lowest prices charged in other countries. These changes would negatively impact J&J, Pfizer, Merck, Novartis, Abbott, Amgen, and Eli Lilly.
Several of the 10 biggest healthcare stocks could see their sales slow or even decline as a result of biosimilar and generic competition. Pfizer, for example, will almost certainly experience a sales slump now that Lyrica has lost exclusivity.
Each of these stocks also could be hurt by regulatory setbacks. Prospects for the drugmakers on the list could be affected by pipeline failures.
Healthcare companies often face litigation. Product liability is a big concern with drugs, medical devices, and other products and services that affect customers' health. Johnson & Johnson, for example, faces around 4,500 lawsuits related to allegations of asbestos in its talc products.
The good news, though, is that all of these healthcare stocks generate solid cash flow and should be able to make it past any temporary challenges. There's an advantage in being big.
Why buy healthcare stocks?
Despite the risks, buying healthcare stocks should still be a good strategy for long-term investors. The aging demographic trends are unstoppable. But some healthcare stocks are better picks than others.
Abbott Labs appears to be perhaps the strongest stock overall on the list of top 10 healthcare stocks. The company's new products should help Abbott to deliver double-digit earnings growth. Abbott's solid dividend will boost the stock's total return even more. In addition, Abbott is diversified across multiple areas of healthcare, reducing its exposure to political risks related to drug pricing.
Remember, too, that there are hundreds of healthcare stocks that aren't in the top 10. Smaller healthcare stocks might have higher levels of risk, but they also often present even greater opportunities for growth.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights owns shares of AbbVie, Alphabet (A shares), and Pfizer. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Amgen, Johnson & Johnson, Roper Technologies, and UnitedHealth Group. The Motley Fool has a disclosure policy.