The 3 Most Undervalued Healthcare Stocks to Buy in March 2024
Undervalued healthcare stocks are primed for a comeback this year, proving themselves as lucrative investments amidst a revitalized market. With a significant uptick in performance, the S&P 500 Health Care index soared roughly 7% year-to-date (YTD), marking a robust recovery from last year’s challenges. This resurgence underscores the sector’s resilience and adaptability post-pandemic.
Elevating the allure of undervalued healthcare stocks, McKinsey & Company’s predictive analytics forecasts a compelling growth trajectory for the sector. With a 4% CAGR, the sector’s value is poised to climb from $654 billion in 2021 to $790 billion by 2026. This projection highlights the sector’s resilience and the inherent value concealed on offer from healthcare stocks.
Consequently, these three undervalued stocks offer a strategic entry point into a sector poised for sustained long-term growth, ensuring their portfolios remain primed for future gains. With that said, let us look at these healthcare picks poised for a comeback amidst the market’s bullishness
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Pfizer (PFE)
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Pfizer (NYSE:PFE) shines as a giant in the pharmaceutical industry, offering compelling value at current prices. The company’s stock, while retracting from its pandemic peak, is on a swift rebound. Its resurgence is linked to its innovative ventures into cell therapy and liver disease treatment and an operational overhaul securing $4 billion in annual savings.
Moreover, Pfizer’s 43 billion acquisition of Seagen dramatically enhances its oncology research capabilities, doubling its commitment to cancer treatment innovation. This strategic move, combined with a partnership with UT Southwestern Medical Center to develop RNA Delivery Technologies, reinforces Pfizer’s progressive initiatives.
Lastly, Pfizer’s financial metrics present a noteworthy investment opportunity. Its forward non-GAAP price-to-earnings (P/E) ratio stands at 12.79 and is significantly below the sector’s median of 19.92. Moreover, it offers a forward yield of 6.2% that surpasses the healthcare sector average with more than 14 years of consistent dividend payments.
Johnson and Johnson (JNJ)
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Johnson & Johnson (NYSE:JNJ) is another healthcare giant on the mend, following the divestment of its consumer products arm into Kenvue (NYSE:KVUE). The $36 billion deal, represents a strategic recalibration aimed at intensifying focus on burgeoning sectors including pharmaceuticals and medical devices. This maneuver signals a transformative shift, where JNJ looks to reallocate its vast resources toward these higher-margin areas.
Amidst this strategic overhaul, JNJ showcased a robust 7.3% sales bump in fourth-quarter (Q4) posting a remarkable $21.4 billion. Its pharmaceutical and medical devices segments propelled the surge, reporting upticks of 4.2% and 13.3%, respectively.
Despite these impressive strides, JNJ’s stock performance has remained modest, trading at a conservative 15 times forward non-GAAP P/E ratio. However, its attractive forward dividend yield of 2.95% and stellar free cash flow generation exceeding $15 billion annually position JNJ for long-term gains.
Medtronic (MDT)
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Medtronic (NYSE:MDT) is an undervalued gem for investors looking for attractive value picks in the healthcare space. The company continues to march forward with aplomb, besting analyst estimates across both lines in the past five consecutive quarters. In its most recent quarter, its EPS of $1.30, outperformed expectations by four cents, while sale of $8.09 billion, beat estimates by a healthy $136.50 million. Following its strong performance, it raised its fiscal 2024 revenue growth and EPS guidance, establishing its supremacy in the medical device sphere.
Furthermore, Medtronic’s value proposition remains excellent in its forward non-GAAP P/E ratio of 16.46, notably lower than the sector’s median of 19.92. Its solid 3.23% dividend yield and decade-long record of consistent dividend growth underscore its blend of stability and profitability, attracting discerning investors.
Lastly, collaborating with Nvidia (NASDAQ:NVDA) to forge an AI-driven diagnostic tool underscores Medtronic’s pioneering spirit. Under CEO Geoff Martha’s guidance, the firm is leveraging AI to enhance clinical decisions and patient care, positioning Medtronic as a top player at the forefront of AI-powered innovation in healthcare
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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