Few industries in the complex financial markets have as much promise and durability as the healthcare industry. The healthcare sector continues to draw in astute investors looking for growth and stability as long as the world’s population struggles with health issues and innovative medical treatments are sought after. In this blog post, we explore the world of the Best Healthcare Stocks and find chances that could strengthen investment portfolios and improve people’s lives all around the world.
With businesses transforming healthcare delivery and pharmaceutical giants spearheading medical innovation, our investigation seeks to help you make wise investment choices in a field that is still vital to our shared future. Join us as we navigate the complex realm of healthcare investments, identifying key players and trends that could shape the financial landscape for years to come.
What are Healthcare Stocks?
Investors have the opportunity to own shares in companies offering healthcare services or products through healthcare stocks. These stocks can be categorized into three groups.
- Pharmaceutical and biotech firms: Engaged in the development, manufacturing, and sale of medical therapies or drugs.
- Healthcare equipment and services companies: Offer a variety of medical tools and services, from surgical instruments and robotic surgery systems to antibacterial products for healthcare.
- Medical insurance companies and managed care organizations: Offer health insurance plans to individuals and businesses, or enter into contracts with healthcare providers to deliver care to plan members.
Exploring the Benefits: Why Consider Investing in Healthcare Stocks
- Stability: Healthcare stocks offer stability as demand for medical products and services remains consistent, regardless of economic conditions.
- Demographic Trends: Aging populations drive increased demand for healthcare services, pharmaceuticals, and medical devices.
- Innovation and Growth: The healthcare industry is characterized by constant innovation, providing growth opportunities for companies with successful developments.
- Defensive Nature: Healthcare stocks are considered defensive, with healthcare spending maintaining resilience during economic uncertainties.
- Global Presence: Many healthcare companies operate globally, providing geographic diversification for investors.
- Regulatory Support and Challenges: Regulatory approval acts as a barrier to entry, but changes in regulations can present challenges and opportunities.
- Dividend Growth: Some healthcare companies have a history of paying and increasing dividends, appealing to income-focused investors.
- Long-Term Trends: Trends like personalized medicine and medical technology advancements contribute to the sector’s long-term growth potential.
Explore the top-performing healthcare stocks for potential investment:
- Merck (MRK): On track for third consecutive revenue growth, driven by Keytruda.
- UnitedHealthGroup: Comprehensive healthcare player with steady growth, up 3%.
- Vertex Pharmaceuticals (VRTX): Dominant in cystic fibrosis market, shares up 22%.
- Intuitive Surgical (ISRG): Robotic surgery leader, stock up 16%.
- AbbVie (ABBV): Despite a 14% decline, showcasing potential revenue-replacement therapies.
- Eli Lilly (LLY): Shares surged 62% on success of tirzepatide.
- Bruker Corporation (BRKR): Life science tools provider, with consistent revenue growth.
- GSK: Minimal growth (less than 1%) after spinning off consumer healthcare.
- West Pharmaceutical (WST): Dividend Aristocrat, shares up 48%.
- Steris (STE): Dublin-based company with 6% share rise, specializing in sterile healthcare products.
Comprehensive Evaluation of the Best Healthcare Stocks to Purchase
Let’s take a closer look at the healthcare stocks that are attracting a lot of interest from investors this year.
1. Merck: The Best Healthcare Stock for Long-Term, Sustainable Growth
Merck has recently concluded a robust third quarter, experiencing a 7% year-over-year increase in revenue to $16 billion. Keytruda played a pivotal role, contributing $6.3 billion in sales, marking a 17% growth compared to the same period last year. Notably, Merck boasts seven additional drugs anticipated to surpass $1 billion in sales this year, with the HPV vaccine Gardasil leading the pack at $2.6 billion in quarterly revenue. The company reported a net income of $4.7 billion for the quarter, reflecting a substantial 46% year-over-year increase.
The company adjusted its yearly revenue outlook, forecasting a range of $59.7 billion to $60.2 billion, up from 2022’s $58.47 billion.
Merck has been actively involved in mergers and acquisitions. Its pipeline consists of 110 items, most of which are in phase 2 or phase 3 trials. It plans to spend $610 million acquiring Caraway Therapeutics, which is well-known for its treatments for neurological diseases. Prometheus Therapeutics was purchased by Merck earlier this year for almost $11 billion, obtaining a late-stage bowel disease treatment. In October, the company revealed a $5.5 billion deal to acquire three cancer drugs from Japanese biotech firm Daiichi Sankyo.
Merck just increased its quarterly dividend by 5.4% to $0.77, demonstrating its strong financial position and the 13th year of dividend increases. As of right now, the dividend yield is about 2.89%.
2. UnitedHealthGroup: Premier Healthcare Insurance Stocks
In the third quarter, UnitedHealthGroup experienced a 14% year-over-year increase in revenue, reaching $92.4 billion. Optum and UnitedHealthcare exhibited remarkable growth, reporting a 12.4% increase in earnings per share at $6.24 compared to last year.
As the largest health insurer in the United States, UnitedHealthGroup anticipates cost savings by guiding its insurance clients towards its healthcare and specialty pharmacy services. With an aging U.S. population expected to drive an uptick in healthcare spending, the company foresees sustained growth. Notably, UnitedHealthGroup holds the highest number of Medicare Advantage customers in the country.
The company has broadened its home healthcare offerings to cater to the growing aging population. In February, the Optum group completed a $5.4 billion acquisition of LHC Group, a home health business, followed by the $3.3 billion purchase of Amedisys in June, a provider of home health, hospice, and high-acuity care.
This year, the company increased its dividend by 13.9%, marking the 13th consecutive year of dividend hikes since it introduced quarterly dividends in 2010. The current yield stands at approximately 1.38%.
3. Vertex Pharmaceuticals: Top Healthcare Stock at Present
Vertex Pharmaceuticals – The company is generating excitement among investors with compelling news. Third-quarter revenue reached $2.48 billion, marking a 6% year-over-year increase. The company has raised its full-year revenue guidance to approximately $9.85 billion, reflecting a substantial 12.5% growth. Additionally, third-quarter net income surged to $1.035 billion, up 11% from the same period last year. With a promising growth outlook, the company remains an attractive buy, trading at 26 times earnings.
Anticipated FDA approval for the gene therapy exa-cel, designed to address sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT), is scheduled for next month in the U.S., followed by another approval for TDT expected in March. Known as Casgevy in the UK, this therapy recently received approval as a one-shot treatment for SCD and TDT. Valued at $2 million per treatment, the drug has the potential to cure both blood disorders.
The company relies heavily on its revenue from the cystic fibrosis therapy Kaftrio. Recently, the European Commission expanded Kaftrio’s label to include children aged two to five with CF. Another potential blockbuster in their pipeline is the non-opioid painkiller VX-548, undergoing phase 3 trials for acute pain with results expected soon. The drug also holds promise for treating diabetes-related neuropathy, with phase 2 trial results anticipated by year-end. Analysts project VX-548 could generate $5.1 billion in annual sales by 2030.
4. Intuitive Surgical
Intuitive is experiencing improved margins as the installation of more surgery systems in hospitals leads to profitable servicing. The company’s equipment benefits from the growth in AI technology, aiding surgeons in continuous improvement by analyzing best practices. In the third quarter, Intuitive reported a revenue of $1.74 billion, marking a 12% year-over-year increase. While system revenue (equipment sales) was $379 million, down 11% from the previous year, third-quarter instruments and accessories revenue grew by 23% to $1.07 billion. Intuitive witnessed a 16.7% year-over-year increase in net income, reaching $466 million.
The company’s pricy da Vinci systems are increasingly leased by hospitals rather than bought outright. In Q3, 312 systems were placed, with 163 under operating leases, up from 113 the previous year. Despite lower system revenue, long-term leasing is expected to compensate.
Intuitive’s first-mover advantage in robotic surgery, with a 68.2% profit margin, positions it well in the growing $4.31 billion global surgical robots market (CAGR 9.5% through 2030). The surge is driven by rising hip and knee replacements and a surgeon shortage, demanding enhanced surgical efficiencies.
5. AbbVie: Purchase Now, Anticipate the Recovery
AbbVie experienced a rapid revenue decline following biosimilar competition for Humira in the U.S. Sales dropped from $15.121 billion in Q4 2022 to $12.2 billion in Q1 2023. However, a rebound is evident, with revenue reaching $13.87 billion in Q2 and $13.93 billion in Q3. CEO Richard Gonzales anticipates a return to annual revenue growth by 2025, driven by the combined sales of Skyrizi and Rinvoq, expected to surpass Humira’s peak sales of $21.2 billion in the previous year.
In Q3, Humira led sales at $3.54 billion but saw a 36.2% YoY decline. Skyrizi sales were $2.125 billion, up 52.1%, and Rinvoq reached $1.1 billion, up 59.8%. The immunology duo is poised to surpass Humira sales in Q4 with ongoing new approvals.
Q3 revenue dipped 6% YoY to $13.93 billion but rose 1% sequentially. Net income was $1.781 billion, down 54.9% YoY and 12.2% sequentially.
AbbVie plans a 4.7% dividend increase to $1.55 next year, maintaining a 4.55% yield. Since 2013, the company has increased its dividend by 285% and, including its time with Abbott Labs, remains a Dividend Aristocrat for over 25 consecutive years.
6. Eli Lilly: Still Time to Ride Stock’s Growth
In Q3, Eli Lilly experienced a significant 37% YoY revenue surge, reaching $9.58 billion. The boost was driven by heightened sales of tirzepatide, along with increased sales of Verzenio for breast cancer and Jardiance for heart failure. Tirzepatide, specifically, contributed $1.409 billion in sales, a substantial increase from the $187 million reported in the same period last year. With FDA approval for obesity therapy, sales of tirzepatide are expected to soar further.
The company posted an EPS loss of $0.06 in the third quarter, a shift from positive EPS of $1.61 in the same period last year. This variance is attributed to intense merger and acquisition activity during Q3. Notably, Lilly acquired Dice Therapeutics for $2.4 million in June, securing an experimental psoriasis pill.
In August, the company finalized three notable acquisitions. These include $1.925 billion for Versanis Bio, known for its weight loss drug bimagrumab. Moreover, the firm purchased Emergence Therapeutics, a biotech company known for cancer-fighting ADC conjugates, for $470 million, and Sigilon Therapeutics for $34.6 million.
Despite the EPS loss, Lilly demonstrated financial strength by raising its quarterly dividend by 15.7% this year to $1.13, marking the 10th consecutive year of dividend increases, with a yield of approximately 0.76%.
7. Bruker Corporation: Top Biotech Growth Pick in Healthcare Stock
Bruker’s specialized laboratory equipment sales are poised to benefit from the increasing prevalence of cell therapies and the growing field of proteomics, particularly in personalized medicine for treating unique patient conditions such as cancers, neurodegenerative diseases, and genetic disorders.
In Q3, the company posted revenue of $742.8 million, marking a 16.3% YoY increase, prompting an upward revision of full-year revenue guidance to $2.88 billion to $2.91 billion, reflecting a growth rate of 14% to 15% compared to 2022. This surpasses Bruker’s prior outlook of $2.85 billion to $2.90 billion.
Quarterly EPS stood at $0.60, a 1.7% increase YoY. Over nine months, revenue reached $1.92 billion, up 15.8% YoY, and EPS was $1.50, reflecting a 12.8% increase over the same period last year.
8. GSK: Enhanced Margins, Noteworthy Dividend
In the third quarter, GSK disclosed a turnover of £8.15 billion (approximately $10.28 billion), marking a 4.1% YoY increase. The company also revised its full-year guidance, confirming anticipated turnover growth of 12% to 13%, surpassing earlier projections of 8% to 10%. GSK revised its projected EPS growth to 17-20%, an upward adjustment from the prior forecast of 14-17%.
The low P/E ratio of this healthcare firm, which is now trading at about 10 times earnings—below others on this list—makes it stand out as a possible steal despite its strong financials. With 68 drugs in the pipeline, the company’s latest medications thrive, alleviating concerns about impending patent expirations and sales.
With its Shingrix shingles vaccine, which witnessed a 15% YoY sales increase to £825 million (about $1.047 billion), the company is seeing tremendous growth. Moreover, Arexvy, the HIV vaccine, experienced a 15% sales surge in Q3 compared to the previous year, reaching £1.623 billion.
9. West Pharmaceutical – The Greatest Healthcare Stock for a Reliable Dividend
A solid third quarter report allowed the U.S.-based medical supplies company to improve its annual guidance for both revenue and adjusted EPS. Q3 sales reached $747.4 million, marking an 8.8% increase, while EPS stood at $2.14, showing a 34.6% rise year-over-year.
West stated that it has revised its forecast for annual revenue, which was formerly between $2.97 billion and $2.995 billion, to between $2.95 billion and $2.96 billion. In any case, revenue growth for the corporation is expected to continue for a record eighth year.
West Pharmaceutical Services has two main revenue streams: its own products and those it makes for other companies. While the company’s own products bring in most of the money, the contract manufacturing side is growing much faster, exceeding 20% year-over-year in the latest quarter.
Minor profit decline results from $350M strategic facility expansion, securing future growth and meeting customer needs as planned.
Good news for investors: West is raising its quarterly dividend by 5.3% to $0.20 per share starting next quarter. This marks 34 years in a row of dividend increases, though the yield remains low at 0.23%. However, with a low payout ratio of 10%, the company has plenty of room for further dividend hikes.
In short, West is investing in future growth while rewarding investors with a steadily increasing dividend, despite a temporary dip in profits.
10. Steris: Steady Revenue. Dividend Growth
Steris, a company specializing in products for infection prevention in various healthcare settings, reported positive financial results in its fiscal 2024 second-quarter report. The company disclosed a revenue of $1.34 billion, indicating a 12% year-over-year increase. Net income for the period was $115.3 million, with earnings per share (EPS) at $1.16. This marks a significant improvement compared to the same period the previous year when the company reported a loss of $315.3 million and an EPS loss of $3.15.
Steris appears to be reaping the benefits of its acquisition of the surgical instrumentation business, which was completed in August. The $540 million deal involved the purchase of surgical instrumentation, laparoscopic instrumentation, and sterilization container assets from Becton, Dickinson and Company (NYSE: BDX).
While Healthcare boomed with a 19% year-over-year surge, Dental and Applied Sterilization Technologies lagged, with a 5% decline and a mere 1% increase respectively. This strong performance from Healthcare helped offset the drag from the other two segments.
Steris has demonstrated consistent revenue growth, with a compound annual growth rate (CAGR) of 14.5% over the last five years. For the current year, the company anticipates revenue growth in the range of 9% to 10%.
In July, Steris raised its dividend by 10.6% to $0.52 per share, marking 18 consecutive years of increases, yielding 1%.
Bottom Line
Capitalizing on enduring healthcare trends, diversify your portfolio with a mix of established large-cap stocks exhibiting consistent revenue growth and dividends. Concurrently, consider investing in promising smaller firms linked to emerging trends like gene-editing. Prioritize companies with favorable valuations relative to peers to avoid overpaying.
While high price-to-equity ratios may indicate potential, patience for an optimal entry point is advisable. Given the prolonged development cycles in healthcare, approach these stocks as long-term investments, recognizing their inherent value.
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