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3 Top Healthcare Growth Stocks to Buy in 2019

Keith Speights, The Motley Fool

Growth: It's what you want for your investments. 

At the most basic level, there are two necessary ingredients for a business to generate strong growth. Rapidly increasing demand for a company's products or services is a must. The company also has to be able to execute well enough to capitalize on that demand. Checking off these boxes leads to revenue growth -- and usually share price appreciation as well.

The overall economy greatly affects demand for products and services in most industries. But healthcare is one area where demand is likely to continue rising regardless of what happens with the global economy. That's why healthcare growth stocks are a great addition to most investors' portfolios. And strong demand and solid execution put Illumina (NASDAQ: ILMN), Intuitive Surgical (NASDAQ: ISRG), and Teladoc Health (NYSE: TDOC) at the top of the list of healthcare growth stocks to buy in 2019.

Physician with stethoscope around neck holding tablet in one hand and extending other hand with an image of 2019 appearing above the hand and connected points of light in the foreground

Image source: Getty Images.

Illumina

Have you ever wondered how companies like Ancestry and 23andMe use your saliva to figure out what countries your ancestors came from? They use Illumina's technology. So do many of the top genetic researchers across the world. Illumina's systems have been used for over 90% of all gene sequencing that has been performed.

Fast-growing demand for personal genomics is only one growth driver for Illumina. It's still relatively early in the launch of the company's NovaSeq next-generation sequencing system. NovaSeq has already been a huge success for Illumina (the company's sequencing instrument sales were the highest in years in Q3), and there are plenty of existing customers who haven't yet switched to the new system.

The company also expects that the NovaSeq platform will lead to a reduction in costs -- with the roughly $1,000 required to map a human genome going down to roughly $100. That will open up the world of gene sequencing to lots of new customers.

Even without lower costs, several other factors are fueling Illumina's growth. Payers are covering its noninvasive prenatal tests for more pregnancies than ever before. Countries across the world are undertaking population genomics efforts involving sequencing of hundreds of thousands of citizens. Oncology research increasingly hinges on gene sequencing. All of this puts Illumina in the driver's seat in a rapidly growing field.

Intuitive Surgical

There are still way too many complications with surgical procedures. Intuitive Surgical thinks it has one answer to the problem with its robotic surgical systems. 

The company's da Vinci system enables surgeons to perform minimally invasive surgical procedures using robotic assistance. This can lead to less variation in surgical outcomes because of the more precise control of instruments and improved visibility of surgical areas that da Vinci provides.

Intuitive Surgical stands to grow significantly thanks to the long-term trend of aging populations across the world. As individuals age, they tend to require more surgery. Older people, for example, undergo prostatectomies and colorectal procedures more frequently than younger people do. Da Vinci is used for both types of procedures.

But Intuitive Surgical is also expanding the types of procedures for which robotic surgery can be used. The company continues to roll out new instruments and accessories that broaden the uses for da Vinci. Intuitive also developed the Ion robotic surgery system for minimally invasive peripheral lung biopsy, opening a new avenue for growth. 

Teladoc Health

Probably the biggest challenge for healthcare is its skyrocketing cost. Teladoc Health offers payers a way to control those costs and appeal to patients at the same time: virtual healthcare services. It's a win-win proposition that has worked out nicely for everyone, including Teladoc shareholders.

There are lots of companies that offer virtual healthcare services. None of them touches Teladoc Health's wide variety of services and global presence. The company has grown quickly, and now claims customers representing roughly 40% of the Fortune 500.

Like Intuitive Surgical, Teladoc Health should benefit from aging populations, as these demographic trends drive greater demand for healthcare services. Payers seeking to find ways to contain costs will likely turn to virtual healthcare services -- and no one does it bigger or better than Teladoc.

In the U.S., Medicare and Medicaid programs are especially looking for alternatives to control rising costs. A shift from traditional fee-for-service to value-based care, which ties reimbursement to the quality of care provided, presents significant opportunities for Teladoc Health.

What could get in the way

Lots of things could cause shares of Illumina, Intuitive Surgical, and/or Teladoc Health to fall -- at least over the short term. But could the companies' long-term growth be hurt as well? Possibly.

The good news is that demand for gene sequencing, robotic surgery, and virtual healthcare is very likely to increase significantly over the coming years. However, there's always a chance that the growth won't benefit these particular companies.

Some think that privately held Oxford Nanopore Technologies could dethrone Illumina. Oxford Nanopore is developing a new type of gene sequencing that could greatly reduce costs and be performed using a handheld device. By comparison, Illumina's NovaSeq 6000 system weighs over 1,000 pounds.

Intuitive Surgical faces competition as well. Big medical-device company Medtronic should soon compete directly against da Vinci with its own robotic surgical system. Other rivals could jump into the market in the not-too-distant future.

And much of Teladoc Health's growth came from acquisitions. Potential competitors with deep pockets could do some acquiring of their own and give Teladoc a run for its money.

Still, when the greatest threat for growth stocks is the possibility that stiff competition might arise, that's not a bad place to be. For now -- and probably for a long time to come -- Illumina, Intuitive Surgical, and Teladoc Health are in great places to be, making them top healthcare growth stocks for 2019 and beyond.

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Keith Speights owns shares of Illumina, Intuitive Surgical, and Teladoc Health. The Motley Fool owns shares of and recommends Illumina, Intuitive Surgical, and Teladoc Health. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.