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Best Healthcare Stocks - Healthcare Stocks to Buy Now

Thursday, November 14, 2019 | MarketBeat Staff
doctors discussing paperwork

Healthcare stocks cover a wide range of different types of companies, offering many different products and services. Due to the aging population and various technological advances, the healthcare industry is one that investors should closely monitor. Here are some of the largest and most noteworthy healthcare companies in the world:

Top Healthcare Companies in the World

These healthcare companies cover many different areas of the healthcare industry. For those that are new to healthcare stocks, researching the top companies can help you gain insight into which stocks to buy. It’s important to understand the basics of the healthcare industry, and why it’s currently of such interest to investors.

Healthcare Industry

There is a growing demand all over the world for healthcare products and services. According to the World Health Organization (WHO), healthcare costs reach $6.5 trillion each year. With this much money being spent, there are plenty of opportunities for investors to make money in this sector.

There are three main categories within the healthcare industry: providers, payers, and suppliers of products and services. The companies within these three broad categories cover very different areas of the healthcare industry.

Healthcare providers are all the organizations and people who provide healthcare services. This includes everything from hospitals and long-term care facilities to dentists and pharmacies.

Healthcare payers are the people who assist in covering healthcare expenses. In the United States, there are government payers, such as Medicare and Medicaid. There are also private organizations within the healthcare payer category, including insurance companies, managed care companies, and pharmacy benefits managers (PBMs).

Suppliers of Products and Services
This is a wide-ranging category and essentially covers everything that falls under the healthcare umbrella that is not a provider or payer. Suppliers include companies developing new drugs and companies that make medical devices. While these products are sold directly to clients, there are also companies that supply products or services that help diagnose diseases, such as creators of medical tests and lab service providers. There are also companies that offer services and technology to help provide infrastructure—for example, companies that help organize, track, and secure client data.

Healthcare Investment Opportunities

There are plenty of investment opportunities within each of these three main areas.

Healthcare is an industry that provides a service that will always be required in one form or another. It’s a good time to invest due to a few factors that are increasing growth. One factor affecting the growth of the healthcare industry is the aging population. As the population ages, they are more likely to need healthcare services. Another area that can have a major impact on the healthcare sector is government regulation. An excellent example of this is the Affordable Care Act (ACA), also known as Obamacare.

The ACA helped millions of more people gain access to health insurance. Lower-income individuals can now have their health insurance subsidized by the federal government. Future government regulation could have a bigger impact on the healthcare industry—especially if the United States switches to a single-payer system. Medicare for All, which is a proposal some Democrats are supporting, would provide healthcare services to all Americans and the federal government would be the sole payer in a single-payer system.

Top Healthcare Companies in the World

Within the constantly evolving landscape of healthcare, the following top companies have managed to make a name for themselves. For those that are looking to learn a bit more about investing in the healthcare industry, these are the healthcare stocks to watch.

UnitedHealth Group is the largest health insurance provider in the United States, and by revenue, it is the largest healthcare company in the world. UnitedHealth Group is not only a global healthcare leader in the provider category of healthcare—it also has a division called OptumHealth, which provides medical services. This means that UnitedHealth Group falls within both the payer and provider categories of healthcare.

Through its different offerings, the company has served about 141 million people. UnitedHealth Group takes advantage of each of its offerings to boost the efficiency and effectiveness of the others. Through OptumHealth, the company can gather more data, which can help ensure that patients are receiving the most efficient possible care. Throughout its history, UnitedHealth Group has acquired many other companies, including an acquisition in June of 2019 of PatientsLikeMe, an online patient platform.

Investors should know that UnitedHealth group pays dividends and is one of the most active stocks by dollar volume.

Medtronics is a maker of various medical devices. Medtronic makes a variety of products, such as pacemakers, insulin pumps, and spinal implants. Since these products are necessities for the people who use them, the company is far less likely to be impacted by a recession than many other companies. It also means the company can continuously raise the prices of its products. This strategy appears to have worked well for the company. Over the last ten years, Medtronic's total returns, including dividends, have been 310%. This far exceeds the total S&P return of 260%. Also, for those interested in dividend stocks, Medtronic is a top dividend distributor. The company has increased its dividend annually for the last 41 consecutive years. Medtronic currently has multiple new products in the pipeline and also has a history of finding new uses for its already existing technology.

Abbott focuses on producing a wide variety of health products, ranging from medical devices to nutritional health beverages. Abbott previously had a drug division, which it spun it off in 2013. Abbott is a large company with many successful products, and it continues to focus on innovation. In fact, 50 percent of its sales are the result of products that the company has released within the last six years.

Some of the most recent products in the company’s pipeline show a lot of promise. One such product is a wearable glucose monitor called FreeStyle Libre. FreeStyle Libre allows people with diabetes to track their glucose without finger pricking. The monitor can be worn for 14 days and continuously monitors glucose. Another product, which currently has no competition, is the MitraClip. The MitraClip can treat certain heart conditions in such a way that the individuals do not need open-heart surgery. Finally, Abbott Laboratories is also working on Alinity, a diagnostic system that can help improve the workflow of diagnostic labs. The company’s growth is expected to increase 12.3% annually over the next three years.

McKesson is an international pharmaceutical and medical supply distributor. The Canadian arm of McKesson—McKesson Canada—is a major player in Canadian healthcare. McKesson Canada works with hospitals, manufacturers, and pharmacies in Canada. McKesson serves a diverse range of both individuals and businesses, which means they may be less affected by volatility in certain trends compared to some other healthcare companies.

However, the company could be affected by drug reform, especially in the United States, since its core business is built around pharmaceuticals. Depending on the legislation and regulations passed, the company could see a dip in profits. Only time will tell if new regulations will affect the company, but for now, the company is still showing modest growth. McKesson has recently launched an Opioid Foundation, to help find solutions to the opioid epidemic. The company also increased its dividend and signed a 10-year partnership deal with Rite Aid.

Though CVS is known for its drugstores, it also has over 1,000 walk-in clinics. Almost 75% of people in the United States live within 3 miles of a CVS. In 2018, CVS acquired the health insurer Aetna, as a way to further diversify. This means that CVS is now involved in both the provider and the payer side of healthcare. The acquisition of Aetna required CVS to take on a large amount of debt, which the company will likely be paying down for a while. The stock price is down due to the acquisition and the debt the company acquired.

Since CVS is currently trading low, now may be a better time to buy. Though the acquisition may have temporarily affected the stock price negatively, it has the potential to improve the value of the company in the long-term. The company’s plan is to promote CVS clinics to those insured through Aetna. Analysts expect 7.2% earnings growth annually over the next three years. Prior to purchasing Aetna, CVS had annually increased its dividend for the last four consecutive years. Due to its debt, CVS was not able to increase its dividend, though it does still pay a 3.5% dividend.

Cigna provides health insurance to people all over the world, with more than 86 million clients in 30 different countries. Cigna has seen massive revenue growth in 2019. In Cigna’s third-quarter earnings report, the company reported $1.35 billion in net income, which is a huge increase from the $945 million reported in the same period of the previous year.

This growth is in large part due to Cigna’s 2018 acquisition of Express Scripts, a pharmacy benefits manager (PBM). Some presidential U.S. candidates have discussed implementing policies that would change the role of both health insurers and PBMs. Since Cigna is now involved in both, any changes could have a massive impact on the company. The effects of various elections in 2020 could cause it to be a volatile year for Cigna stock.

Founded in 1941, Stryker is a medical technology company that develops, manufactures, and sells medical devices. Stryker primarily provides orthopedic products and services, but the company also makes products for medical and surgical, as well as neurotechnology and spine. Stryker has seen a massive rise in its stock price in 2019. According to Stryker’s third-quarter earnings report, Stryker’s net income for the third quarter of 2019 was $590 million.

The company did have a drop in earnings, which was due largely to taxes. In the third quarter of 2019, Stryker paid $115 million in income taxes, while in the third quarter of 2018, the company had a $56 million tax benefit. Unlike some other large healthcare companies, Stryker tries to focus on steady growth as opposed to growth in major spurts. The company pays excellent dividends and has been consistently paying them out since 1991. For this reason, Stryker may be a good option for investors who are looking for a steady performer as part of a dividend investing strategy.

Founded in 1979, Cardinal Health provides services and products to those in the healthcare industry. Cardinal Health has two main branches of its company—pharmaceutical and medical. The pharmaceutical branch of the company distributes pharmaceutical products and also has nuclear pharmacies and cyclotron facilities. The medical branch of the company makes and sells medical, surgical, and laboratory products.

Cardinal Health has recently seen stock prices fall due to falling operating income. In the last three years, Cardinal Health has seen its stock price fall by 45%. The company’s issues stem from issues with pricing and its supply chain. Cardinal Health still has some strong segments of the company, including its specialty pharmaceutical products. Recent issues may not yet be resolved and could continue to affect its stock price. However, if the dip in the stock price is temporary, it might be a good time to invest in the company.

HCA operates 185 hospitals and provides healthcare services in 2,000 different locations. In 2019, HCA had a poor second quarter but a strong third quarter. The stock price also dipped earlier in the year, due to concerns about how the 2020 elections may affect the company. However, in the third quarter of 2019, admissions to HCA facilities grew 6%.

HCA has a capital spending plan that involves increasing capacity, growing its ambulatory network, and increasing the clinical technology that it provides to physicians. HCA is also hiring more physicians. The company plans to increase the number of physicians it employs by 8-10% each year. HCA is also investing in the telemedicine space, which enables patients to receive care remotely instead of in-person.

Fresenius is a global provider of healthcare products and services for dialysis, hospitals, and outpatient treatment. The company is based in Germany and has employees in over 100 different countries. Fresenius is the largest provider of treatments for dialysis in the world. The company’s third-quarter earnings report saw strong growth in the dialysis home treatment segment and infusion therapy. Like many other health stocks, Fresenius is also vulnerable to changes in healthcare regulations, especially in the United States. Even though Fresenius has a large global presence, 75% of the company’s revenue comes from the United States. Fresenius saw a strong third quarter, even though investments made in improving hospitals and home dialysis products had a negative effect on the company’s profit. Sales in the third quarter of 2019 totaled 4.4 billion euros, according to the company’s third-quarter earnings report.

Medical Stocks

Medical stocks are an incredibly wide-ranging category of stocks, much like the overall healthcare industry. One of the most noteworthy areas in the medical sector is medical device stocks. The term medical device is used to describe an incredibly diverse range of products with an equally wide range of potential uses. Due to the wide-ranging nature of the products, some medical devices have several regulation issues they must address, while others have very little. Before investing in a medical device company, find out if the company must comply with complex regulations—and if so, consider how these regulations may affect the company’s growth.

The medical device market as a whole is likely to grow due to the aging population. In particular, medical device companies with an emphasis on new technology are likely to have the most potential for growth.

Top medical device stocks to consider:

  • Abiomed (ABMD)
  • Align Technology (ALGN)
  • DexCom (DXCM)
  • Intuitive Surgical (ISRG)
  • Tandem Diabetes Care (TNDM)

For those looking to invest in medical device stocks, tread carefully, because the majority of medical device stocks are small companies that are still in the development phase. This means they likely do not yet have a source of income.

Biotech Stocks

Biotech companies attempt to develop drugs that treat various health issues. Biotech companies are often high-risk investments, but they also offer the potential for large rewards if the company ends up doing well. Why are biotech stocks so risky? Many drugs require an incredibly long development time. It can take 10 years (or longer) for a new drug to be available for consumers. Investors should understand that most drugs fail. That being said, if a company does succeed to develop a drug and get it to market, investors can make a lot of money. A lot of this success or failure is based on the FDA, and whether the drugs are able to get approval.

Investors may also be interested to know that dividends in the biotech industry are rare. For those interested in investing in biotech stocks, the following are some of the top companies worth watching.

  • Johnson & Johnson
  • Roche
  • Novartis
  • Pfizer
  • Merck
  • Gilead Sciences
  • Novo Nordisk
  • Amgen
  • Bristol
  • Sanofi

Pharmaceutical Stocks

There is a modest amount of overlap between the biotech and pharmaceutical industries. They both profit from prescription drugs. The main difference between the biotech sector and the pharmaceutical sector is that biotech is focused more on the development of new drugs, while pharmaceutical is more about marketing. Increasing drug prices mean that many pharmaceutical companies are seeing strong profits.

One important note about pharmaceutical stocks: Regulations can certainly affect the industry. For example, action taken in response to the opioid epidemic, including litigation, will affect certain companies. For those interested in pharmaceutical stocks, the following companies are some of the best pharmaceutical stock picks:

  • Eli Lilly
  • Merck
  • Pfizer
  • Zoetis
  • Johnson and Johnson
  • AbbVie

Best Healthcare ETF

Exchange-traded funds (ETF) are funds controlled by analysts that hold multiple assets. If you want to invest in healthcare but aren’t sure where to start, healthcare ETFs can be a great option. With a healthcare ETF, you can invest in many of the top healthcare stocks all at once. Experienced analysts manage the overall strategy, so there is often less risk.

Since there are so many areas of healthcare, you can also use an ETF to narrow your focus. For example, if you’re interested in biotech stocks, you could invest in an ETF made up of biotech stocks. There are also ETFs that invest in healthcare dividend stocks. In general, here are some of the best healthcare ETFs available today:

  • Health Care Select Sector SPDR Fund (XLV)
  • Vanguard Health Care Index Fund ETF (VHT)
  • iShares Nasdaq Biotechnology ETF (IBB)
  • iShares U.S. Medical Devices ETF (IHI)
  • SPDR S&P Biotech ETF (XBI)

Healthcare - Which Stocks to Buy?

Healthcare stocks are a sector of the stock market that attracts many investors. Whether you’re interested in the best growth stocks or the biggest stock gainers, healthcare stocks can be a good addition to your portfolio. The overall health of the market is likely to improve, due to new technology and an aging population. Keep in mind that each sector of the healthcare industry has its own unique set of risks. You may want to speak with a financial advisor to find out if investing in healthcare stocks is right for you.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
UnitedHealth Group (UNH)2.4$330.60+1.5%1.51%18.99Buy$346.68
Medtronic (MDT)2.1$111.42-0.4%2.08%34.07Buy$117.86
Abbott Laboratories (ABT)1.7$107.79-1.5%1.34%57.03Buy$115.13
McKesson (MCK)1.9$156.41+1.4%1.07%27.88Buy$179.08
CVS Health (CVS)2.4$60.25+1.3%3.32%9.58Buy$82.33
Cigna (CI)2.4$184.49+2.9%0.02%13.13Buy$243.70
Stryker (SYK)1.9$221.90-1.2%1.04%52.71Buy$220.68
Cardinal Health (CAH)2.2$49.34+1.2%3.93%-3.95Buy$59.78
HCA Healthcare (HCA)1.5$136.59+1.0%N/A14.08Buy$149.50
Fresenius Medical Care AG & Co. (FMS)1.8$40.86+1.8%1.22%16.88Buy$45.13
Compare These Stocks  Add These Stocks to My Watchlist 

7 Boring Stocks That Are Winners

Some stocks just don’t get much attention during bull markets. They can be too boring for a growth portfolio. But when the market is going through a period of volatility and uncertainty, these tried-and-true performers have a way of making their way back to popularity.

And there are good reasons for this. First, many of these boring stocks pay dividends. This simply means that the company will reward shareholders simply for holding on to its stock. Dividend stocks aren’t designed to make you rich quickly. However they are designed to offer investors an amount of predictability. And we could all use a little bit of that right now.

And predictable stocks can also help investors manage risk. It can be fun to invest in speculative stocks. But they include a risk premium. When these stocks go up (as they sometimes do) they usually have a return that exceeds the broader market. But when they go down (and they usually do) they usually go down more than the broader market.

But “boring” stocks tend to move closer to the broader market. If you want an analogy from current events, these stocks flatten the curve. They won’t soar as high as riskier stocks, but they won’t sink as low either. And right now, preserving capital should be the number one item on every investor’s checklist.

With that in mind, we’ve created this special presentation to highlight 7 conservative stocks that can help investors win this moment in time. Many of them pay dividends; some do not. But they all have solid fundamental reasons to own them now.

View the "7 Boring Stocks That Are Winners".

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