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The 5 Best Healthcare Stocks of 2018 (So Far)

Cory Renauer, The Motley Fool

There's more to healthcare than just the biotechnology industry, but you'd hardly know that by looking at the leader board this year. The vast majority of the sector's top performers this year make medicines, but a handful come from different corners of the sector. 

Here's what every investor should know about the waves these five healthcare players have been making lately.

Company Year-to-Date Gain Market Cap
Abiomed, Inc. (NASDAQ: ABMD) 117% $18.1 billion
Tenet Healthcare Corporation (NYSE: THC) 134% $3.3 billion
Tandem Diabetes Care, Inc. (NASDAQ: TNDM) 877% $1.2 billion
Natera, Inc. (NASDAQ: NTRA) 122% $1.1 billion
Genesis Healthcare, Inc. (NYSE: GEN) 212% $379 million

Data source: Yahoo! Finance.

1. Natera, Inc.: Post-IPO comeback 

This rapidly growing diagnostics company completed its initial public offering a few years ago, and then its share price immediately began disappointing investors. Natera stock began a strong recovery earlier this year following hints that positive cash flows are in the near future. More recent news that suggest the company can make a splash in an important diagnostic market cranked the excitement up even further.

Kidney transplant patients are generally better off when their healthcare providers recognize signs of rejection early, which is why Medicare has agreed to spend around $2,800 each time someone's tested. There are around 190,000 people living with a kidney they weren't born with, so launching a test that beats the competition could add billions to this company's revenue stream.

To gauge the test's sensitivity, investigators followed 193 kidney transplant patients for a while and noted 52 eventually experienced acute rejections. Natera's dd-cfDNA assay identified 48 of these patients early, which works out to a 92% sensitivity rate. That's a lot better than today's most popular tests, which could make this product a huge revenue contributor for this diagnostics upstart.

Surgeon holding a dollar bill with forceps.

Image source: Getty Images.

2. Abiomed, Inc.: Huge success for tiny pumps

This is the company behind the increasingly popular Impella heart pumps that lighten the load on the heart during a variety of surgical procedures. Long-term investors can't get enough of this company because it's cornering a market that it's creating. Its tiny, temporary pumps allow lots of weakened patients to undergo life-saving procedures they probably wouldn't survive otherwise.

During the year ended this March, revenue soared 33% higher than the same period last year and first quarter figures that were 40% higher on year suggest revenue growth is accelerating. Investors have pushed the stock up in hopes that a huge surge in Germany will spread throughout the EU and beyond. During the first three months of the year, heart pump revenue from Germany jumped 95% to $15 million.

A little over a year ago, Abiomed scarcely mentioned international sales, and now they comprise 13% of total revenue. Impella pumps are just gaining steam in Germany and Japan, but coronary heart disease is a huge problem for most developed countries. That gives this company plenty of room to grow.

Blister pack full of dollar signs instead of medicine

Image source: Getty Images.

3. Tenet Healthcare Corporation: Returning to profitability

This for-profit hospital operator hasn't produced a significant profit for its shareholders since the Affordable Care Act started shifting responsibility for spending controls from insurers to healthcare providers in 2011. The company's operations churn out a respectable profit year after year, but interest payments on a heavy debt load have been too much of a strain.

The stock has surged 128% this year as one earnings report after another has investors thinking the company just might pull through. Admissions are climbing slowly, and revenue per patient climbed significantly in the most recent quarter. As a result, the company has raised its 2018 operating earnings outlook twice this year.

There's still a lot of debt to pay down, but management now expects to report a net profit this year between $105 million and $180 million. A couple of more years at this level could allow Tenent Healthcare to climb out from under its debt load, and send its stock climbing much higher in the process.

A patient gives a thumbs up as he and his doctor smile.

Image source: Getty Images.

4. Genesis Healthcare Inc.: Post-acute performer

This is one of the country's largest providers of post-acute care, with 450 skilled nursing centers, and a small army of rehabilitation specialists. It's also another troubled healthcare provider with profitable operations that can't turn a net profit because of a heavy debt load.

This healthcare stock has more than tripled this year because there appears to be a light at the end of the tunnel. To start the year, Genesis announced new financing commitments that will give it some breathing room.

Medicare and Medicaid were responsible for a combined 79% of this company's total revenue last year, so slight changes to reimbursement rates will have a big effect on the stock price. If they just hold steady, though, Genesis Healthcare might pull through.

The company's been divesting non-performing assets left and right, which might allow for positive cash flows in the quarters ahead. If Genesis can just keep its head above water, there could be more gains ahead. 

Cheerful laboratory employee

Image source: Getty Images.

5. Tandem Diabetes Care, Inc.: Pumped up

High blood sugar harms diabetics slowly, but too little blood sugar can lead to big trouble right away. It's a huge problem for more than a million type-1 diabetics in the U.S. alone, and automated pumps that constantly monitor blood sugar and release insulin in response are becoming an increasingly popular option.

Tandem Diabetes Care is far and away the best performing healthcare stock this year, because investors are hopeful its new touchscreen insulin pumps can take on current leaders in the space. The company's updating current monitors to include a predictive pause feature that's been shown to reduce the amount of time patients spend with dangerously low-blood sugar.

Just because they went up doesn't mean you should buy

Watching stocks climb for respectable reasons, as these ones have, might make them seem invincible. Nothing could be further from the truth. For example, Tandem is still losing money and had to tap shareholders for more earlier this year.

Tenet and Genesis struggle to make ends meet, and there's already a lot of success baked into the share price for Abiomed and Natera. If you're going to try to catch one of these rising stars, make sure you consider all the angles first.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Abiomed. The Motley Fool has a disclosure policy.