In the United States, healthcare is a fast-growing industry. Healthcare spending is rising at about 8% per year. A typical American Family of four spent about $18,000 on medical costs in 2010, compared with $16,771 in 2009. Between 2006 and 2010, the annual medical costs have increased by almost 35%. The rising healthcare costs are not good for the patients, but those who invest in healthcare stocks will benefit from such growth. As healthcare spending and costs are rising, we believe healthcare stocks will continue to be in the portfolios of most smart investors in the future. Below we compiled a list of top 10 most profitable healthcare companies based in US. All companies have at least $10 billion market cap, operating margin of over 20%, and EPS growth rate of more than 10% over the past five years.
|Ticker||Company||EPS growth||Operating Margin|
|ALXN||Alexion Pharmaceuticals, Inc.||87.72%||28.16%|
|BDX||Becton, Dickinson and Company||11.96%||22.52%|
|BIIB||Biogen Idec Inc.||53.14%||33.63%|
|GILD||Gilead Sciences Inc.||31.09%||45.84%|
|ISRG||Intuitive Surgical, Inc.||45.46%||39.54%|
|LLY||Eli Lilly & Co.||20.13%||23.41%|
|STJ||St. Jude Medical Inc.||21.48%||21.94%|
Gilead Sciences Inc (GILD) seems to be the most profitable healthcare stock on the list above. Its operating margin is 45.84% and its EPS grew at 31.09% per year on average over the past five years. Gilead is a biopharmaceutical company focusing on developing and commercializing human therapeutics for life threatening diseases. In 2010, the company reported total revenues of $7.95 billion, compared with $3.03 billion in 2006. GILD has a market cap of $36B and a P/E ratio of 13.82. There is some recent interest in Gilead from top hedge funds. Dan Loeb’s Third Point initiated a brand new $47 million of GILD over the third quarter. On the other hand Bill Miller cut his bets on GILD by 85% during the third quarter.
Biogen Idec Inc (BIIB) also has a high operating margin of 33.63%. Over the past five years, its EPS grew by 53.14% on average per year. Biogen Idec is engaged in discovering, developing, manufacturing and marketing products for the treatment of neurological disorders and other serious diseases. The company reported total revenues of $4.7 billion in 2010, compared with $2.7 billion in 2006. BIIB has a market cap of $28B and a P/E ratio of 24.38. It is also quite popular among hedge funds. There are 34 hedge funds with BIIB positions at the end of the third quarter. Andreas Halvorsen is the most bullish hedge fund manager about BIIB. His Viking Global had $235 million invested in this stock at the end of September. George Soros initiated a brand new position in BIIB during the third quarter as well (see billionaire George Soros’ top stock picks).
Alexion Pharmaceuticals Inc (ALXN) is the fast-growing stock on the list above. Its EPS grew at 87.72% on average annually during the past five years. It also has a high operating margin of 28.16%. Alexion is engaged in discovering, developing and commercializing therapeutic products aimed at treating patients with severe and life-threatening diseases. Its total revenue increased from only $1.56 million in 2006 to $541 million in 2010. ALXN was held by 20 hedge funds at the end of the third quarter. Andreas Halvorsen’s Viking Global also bought $46 million worth of new ALXN shares during the third quarter. Jim Simons’ Renaissance Technologies had $23.4 million invested in ALXN at the end of September.
We like healthcare stocks. Healthcare is still growing faster than the rest of the economy and National Health Expenditures (NHE) as a share of GDP is expected to reach 19.6% by 2019. We think healthcare is a promising sector and we encourage investors to do some in-depth research on the profitable healthcare stocks for their portfolios.