In this piece, we will take a look at the twelve best healthcare stocks to buy now. If you want to skip the details and head on to the top stocks in this list, then take a look at 5 Best Healthcare Stocks To Buy Now.
Healthcare stocks are proving to be resilient in the wake of the current market storm, gaining praise from notable analysts. Walter Todd, chief investment officer at Greenwood Capital in South Carolina, thinks that healthcare is one of the "last opportunities to play defense at a reasonable price" in the current market situation, according to a Reuters report.
The Standard and Poor's 500 index, the NASDAQ Composite, and the New York Stock Exchange have lost 15%, 23%, and 11.45% of their values in 2022 as of last week. In comparison, the Health Care Select Sector SPDR ETF has lost only 7.18%, the iShares US Healthcare Providers ETF has lost 6.8%, and the Fidelity MSCI Health Care ETF has lost 9.27%, demonstrating that the healthcare sector has indeed weathered the recent stock market storm.
The industry itself is divided into several categories. For instance, the global market for digital health technologies was worth $174 billion last year and will grow at a compounded annual growth rate of 17.1% to stand at $385 billion in 2028 according to a research report from BCC Publishing. Another example of an impressive segment is the North American health care information technology market. A report from Markets and Markets estimated that this sector was worth $96.3 billion in 2019, and over the next couple of years, it will grow at a CAGR of 16.4% for a value of $239 billion in 2025.
Finally, the famed market consultancy firm McKinsey came out with a report of its own for the healthcare industry in July this year. The firm is quite optimistic about the industry as it expects post-Covid growth to accelerate from the pre-Covid era. McKinsey lays down its estimates in the form of earnings before interest, depreciation, and taxes (EBITDA) which is a measure of a firm's earnings from its operations after direct and indirect expenses are accounted for. The healthcare EBITDA can grow by 6% between 2021 to 2025, believes McKinsey. However, McKinsey also cautions that if inflation persists, then profits could also decline by $70 billion.
Therefore, it is clear that the healthcare sector merits serious consideration and throughout this piece, you will discover healthcare stocks and their details. Some of the well known stocks on the list are Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), and Pfizer Inc. (NYSE:PFE).
In order to discover some of the best healthcare stocks, we took a look at broad industry trends and the economic environment to wager which firms will benefit during these turbulent times. The companies were then sorted through hedge fund interest, which comes from Insider Monkey's survey of 912 funds for the first quarter of this year.
12 Best Healthcare Stocks To Buy Now
12. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 31
Novo Nordisk A/S (NYSE:NVO) is a Danish company that develops and sells pharmaceutical medicines all over the globe. The company primarily develops treatments for a select range of diseases such as diabetes, obesity, and growth disorders. It is headquartered in Bagsvaerd, Denmark.
Novo Nordisk A/S (NYSE:NVO) is the global leader when it comes to providing treatments for diabetes. Subsequently, 80% of its revenue is derived from selling insulin and other associated products, which then leaves the revenue highly correlated to the global diabetic population. Globally, diabetics are projected to increase by 3% annually and sit at 642 million people by 2040, in a rather somberly optimistic outlook for Novo Nordisk A/S (NYSE:NVO). The firm's obesity drugs also grew by 55% in 2021, outpacing rivals. Novo Nordisk A/S (NYSE:NVO) has a 1.35% dividend yield.
BNB Paribas noted Novo Nordisk A/S (NYSE:NVO)'s gains in the obesity segment, as it upgraded the firm's share price rating to Neutral from Underperform. 31 out of the 912 hedge funds part of Insider Monkey's Q1 2022 survey had invested in the company.
Novo Nordisk A/S (NYSE:NVO)'s largest shareholder is Jim Simons's Renaissance Technologies which owns 18 million shares that are worth $2 billion.
In a fresh Q2 2022 investor letter, Rowan Street Capital LLC mentioned the company and outlined:
“What did well for us in the first six months of 2022? It is tempting to observe ‘not a lot’ but here’s one of the five biggest positive contributors to performance: Novo Nordisk. NVO discovered that a drug it had developed for diabetics was also the world’s first really effective weight loss drug.”
Novo Nordisk A/S (NYSE:NVO) joins Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE) in our list of leading healthcare stocks.
11. Bio-Rad Laboratories, Inc. (NYSE:BIO)
Number of Hedge Fund Holders: 45
Bio-Rad Laboratories, Inc. (NYSE:BIO) is a global life science and clinical diagnostics equipment provider. The firm develops and sells equipment used in a wide variety of applications such as research, medicine development, testing, and laboratory quality control. It is headquartered in Hercules, California.
Bio-Rad Laboratories, Inc. (NYSE:BIO) was one of the companies that greatly benefited from the coronavirus pandemic, as demand for diagnostics equipment grew. Now, however, the firm's valuation metrics such as return on invested capital (ROIC) and Weighted Average Cost of Capital (WACC) suggest that while growth has slowed, it is still generating returns. The ROIC/WACC ratio of 2.3x shows that the return is more than double the cost of investing. A 2.3x ratio means that for every $100 that Bio-Rad Laboratories, Inc. (NYSE:BIO) spends to raise capital, it ends up making a return of $230 - making it one of the few healthcare companies to do so.
Citi reduced the company's share price target to $700 from $750 in July 2022, as it stated that the recent macroeconomic environment is tricky. The downgrade is related to the sector as a whole, as banks struggle to finetune their models to the current economic uncertainty, but the fact that Bio-Rad Laboratories, Inc. (NYSE:BIO) topped Wall Street revenue estimates for its fiscal Q2 despite revenues dropping 3.5% annually shows that the firm has the tools to weather the current storm.
Insider Monkey scanned 912 hedge fund portfolios for the first quarter of this year to discover that 45 had bought Bio-Rad Laboratories, Inc. (NYSE:BIO)'s shares.
Paul Marshall and Ian Wace's Marshall Wace LLP is Bio-Rad Laboratories, Inc. (NYSE:BIO)'s largest investor. It owns 467,343 shares that are worth $263 million.
10. Baxter International Inc. (NYSE:BAX)
Number of Hedge Fund Holders: 45
Baxter International Inc. (NYSE:BAX) is an American healthcare company headquartered in Deerfield, Illinois which was founded in 1931. The firm offers a wide variety of products such as dialysis equipment, pumps, cancer platforms, surgical devices, and critical care products.
S&P Global expects Baxter International Inc. (NYSE:BAX) to grow its operating income in the double digits until 2025, and the company has grown its earnings per share by more than 16% annually since 2015. It is also one healthcare firm that is expected to benefit from a reduction in COVID-19 cases, as providers focus their aim on other diseases. Baxter International Inc. (NYSE:BAX) also pays a 29 cent dividend per share per quarter for a 1.96% yield.
Citi lowered Baxter International Inc. (NYSE:BAX)'s share price target to $74 from $82 in July 2022, highlighting that some of the company's recent troubles appear to be transitory. Insider Monkey's 912 hedge fund poll for this year's March quarter revealed that 45 had held a stake in the company.
Out of these, David Blood and Al Gore's Generation Investment Management is Baxter International Inc. (NYSE:BAX)'s largest investor through holding 16 million shares worth $1 billion.
9. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
Number of Hedge Fund Holders: 49
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a healthcare company that focuses its attention on developing treatments for cystic fibrosis. Its treatments target genetic mutations, and they also serve other diseases such as those of the kidney.
A major item to watch for when it comes to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the fact that the firm is developing an end to end treatment for diabetes that aims to replace damaged cells in patients. If successful, this treatment could end up eliminating the need for insulin. Additionally, its cash reserves of $8.2 billion also lend it an advantage for research and development.
Perhaps these facts were on Piper Sandler's mind as it increased Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)'s share price target to $256 from $242 in July 2022 alongside keeping a Neutral rating on the shares. Insider Monkey's Q1 2022 912 hedge fund survey revealed that 49 had held stakes in the company.
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)'s largest investor is Jim Simons's Renaissance Technologies which owns 1.7 million shares that are worth $445 million.
In the quarter just prior to the Fund’s initial purchase of Vertex, knowledgeable insiders, including the company’s CEO and its lead independent director, purchased millions of dollars of the company’s stock at prices higher than we paid for the Fund’s shares. The company itself also repurchased approximately $642 million worth of its shares in the 3rd quarter at or around the same prices paid by the CEO and lead director ($195 per share). We estimate the company’s underlying intrinsic value to be in the range of $240 to $250 per share, and we believe that estimate is well supported by current, here-and-now cash flow, operating income and earnings per share. Morningstar and Goldman Sachs have valued the company at substantially higher prices than our estimate of $240 – $250 per share. The Fund’s weighted average cost in the stock is $187. At initial purchase, the company was trading at approximately 14 times current earnings, and 9.9 times enterprise value to earnings before interest and taxes.”
8. Seagen Inc. (NASDAQ:SGEN)
Number of Hedge Fund Holders: 49
Seagen Inc. (NASDAQ:SGEN) is an American company that is headquartered in Bothell, Washington. It focuses its efforts on primarily developing treatments for cancers. Some of the cancers that the firm targets are Hodgkin's lymphoma, urothelial cancer, breast cancer, and cervical cancer.
Seagen Inc. (NASDAQ:SGEN)'s drug for urothelial cancer is one of the strongest of its kind, and is growing by a remarkable 44% annually and it offers longer survival times than traditional chemotherapy. Cumulatively, its drugs have $15 billion in the total addressable market (TAM), which leaves plenty of room for growth given current revenues of $383 million in its latest quarter.
H.C. Wainwright increased Seagen Inc. (NASDAQ:SGEN)'s share price target to $270 from $200 in July 2022, stating that the firm's cancer treatments are progressing well. Out of the 912 hedge funds part of Insider Monkey's survey for this year's March quarter, 49 had invested in the firm.
7. Abbott Laboratories (NYSE:ABT)
Number of Hedge Fund Holders: 68
Abbott Laboratories (NYSE:ABT) is a global health care products provider that targets several areas such as medical devices, pharmaceuticals, nutritional products, and medicines. It is one of the oldest companies in the U.S. and is headquartered in North Chicago, Illinois.
Abbott Laboratories (NYSE:ABT)'s resilience to unexpected disruption was evidenced by the infant formula crisis in the U.S. which saw the firm handle the crisis within months and left its share price unaffected. The firm also has one of the strongest portfolios of COVID-19 testing devices in the market, beefing its ability to benefit from the virus's resurgence. It also pays a 47 cent dividend for a 1.73% yield.
Insider Monkey's Q1 2022 survey of 912 hedge funds revealed that 68 had invested in Abbott Laboratories (NYSE:ABT). The company's strong portfolio of COVID-19 testing kits boosted its revenues during this year's second quarter, resulting in Abbott Laboratories (NYSE:ABT) to raise its full year guidance as it posted its Q2 earnings. The upgraded guidance is $4.90 in adjusted EPS for the full year, and the fact that it now expects to earn $6.1 billion (up from $4.5 billion) from testing during before the end of this year is a testament to the strength of its product portfolio.
Abbott Laboratories (NYSE:ABT)'s largest investor is Ken Fisher's Fisher Asset Management which owns 9 million shares worth $1 billion.
“Abbott Labs announced a recall of its infant formula brand Similac® in the US. Though the recall will impact near-term revenues, we are not concerned about any long-term impacts. We remain optimistic about the company’s prospects over the long run because, in our view, it is one of the highest quality names in health care with a talented management team that makes smart capital allocation decisions. Abbott also has leading health care and consumer franchises with a particularly strong competitive position in the medical device business. Abbott continues to launch innovative products in key strategic areas (such as diabetes, structural heart and diagnostics), which should help drive not only revenue growth but margin expansion.”
6. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 76
AbbVie Inc. (NYSE:ABBV) is an American pharmaceutical company that sells medicines and treatments for several diseases such as psoriasis, pancreatic diseases, constipation, and glaucoma. It is headquartered in North Chicago, Illinois.
AbbVie Inc. (NYSE:ABBV) is diversifying its product portfolio and has added two new drugs to its list that have a combined estimated sales of $15 billion by 2026. Additionally, and more importantly, except for one drug, none of the company's products have their patents expiring this decade - indicating a strong revenue pipeline. To add a cherry on top, AbbVie Inc. (NYSE:ABBV) has a $1.41 dividend per share for a 4.02% yield.
Morgan Stanley raised AbbVie Inc. (NYSE:ABBV)'s share price target to $191 from $188 in July 2022, sharing that the firm can deliver strong revenue growth throughout this decade. 81 of the 912 hedge funds surveyed by Insider Monkey during Q1 2022 had bought the company's shares.
AbbVie Inc. (NYSE:ABBV)'s largest investor is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital which owns 4.6 million shares that are worth $754 million.
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. AbbVie (NYSE:ABBV) is a research-based biopharmaceutical company. Shares gained after the company reported earnings that missed revenue but beat earnings-per-share estimates. Discussion around the report was mixed but skewed positive.”
Along with Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), and Pfizer Inc. (NYSE:PFE), AbbVie Inc. (NYSE:ABBV) is a leading health care stock.
Click to continue reading and see 5 Best Healthcare Stocks To Buy Now.
Disclosure. None. 12 Best Healthcare Stocks To Buy Now is originally published on Insider Monkey.