13 Best Medical Stocks To Invest In

Published on March 29, 2023 at 7:50 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 13 best medical stocks to invest in. If you want to see more stocks in this selection, check out 5 Best Medical Stocks To Invest In.

The global healthcare sector has been permanently transformed by the COVID-19 pandemic, which has resulted in a faster adoption of novel technologies and care delivery methods, as well as a heightened emphasis on sustainability and resilience. The COVID-19 outbreak brought about a rapid increase in patients, rising healthcare requirements, workforce scarcities, and difficulties in supply chain management. In response, healthcare providers turned to innovative solutions like telemedicine and electronic health records (EHRs) to tackle these problems effectively. These digital technologies were aimed at reducing costs, managing fluctuating demand patterns, addressing the shortage of medical personnel, and improving readiness for potential future global health crises.

There is a growing need for healthcare services from small businesses, including clinics, labs, and other providers that cater to local communities. Despite the ongoing trend of consolidation into larger healthcare groups and hospitals, it is predicted that the number of small healthcare practices will increase in 2023. According to IBISWorld, the number of companies that specialize in primary care is expected to rise steadily at a yearly rate of 1.6%, reaching 152,496 businesses by 2027. The outlook for the healthcare sector is predicted to be neutral in 2023 due to various factors, such as a rise in demand for services, the use of a more affordable and personalized delivery approach, progress in business technology, and the capacity to adjust to the evolving healthcare environment.

In 2023, healthcare expenses are expected to decrease in real terms due to high inflation rates and sluggish economic growth, as per a report by Economist Intelligence Unit (EIU). This scenario will prompt the need for difficult decisions on how to provide care. The healthcare system will continue to digitize, but there will be stricter regulations on the use of health data in the US, Europe, and China. Patent cliffs for vital drugs and attempts to regulate pharmaceutical pricing in countries such as the US and India will lead major pharma companies to pursue growth via mergers and acquisitions. Despite investing in more localized pharmaceutical production, drugmakers’ expenses will still increase due to ongoing supply chain disruptions.

Amid this market outlook, some of the best medical stocks to invest in include Abbott Laboratories (NYSE:ABT), HCA Healthcare, Inc. (NYSE:HCA), and DexCom, Inc. (NASDAQ:DXCM). Investors can also check out 13 Most Undervalued Healthcare Stocks According to Hedge Funds, 12 High Growth Healthcare Stocks to Buy, and 10 Hot Healthcare Stocks To Buy Now.

Our Methodology

We chose the top medical stocks based on overall hedge fund sentiment, including companies providing medical care facilities, medical devices, and medical instruments and supplies. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm.

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Best Medical Stocks To Invest In

13. Align Technology, Inc. (NASDAQ:ALGN)

Number of Hedge Fund Holders: 34

Align Technology, Inc. (NASDAQ:ALGN) designs, manufactures, and promotes Invisalign transparent braces, as well as iTero dental scanners and related services. These products are aimed at orthodontists and general dental practitioners, and are sold both in the United States and internationally, including in Switzerland and China. On February 6, Align Technology, Inc. (NASDAQ:ALGN) announced a new accelerated share buyback agreement with Citibank to repurchase $250 million of the company’s common stock.

On February 2, Elizabeth Anderson, an analyst at Evercore ISI, increased the target price for Align Technology, Inc. (NASDAQ:ALGN) from $230 to $375 and maintained an Outperform rating on the company’s shares. According to the firm, Align Technology, Inc. (NASDAQ:ALGN)’s Q4 financial results were better than expected, and the outlook for Q1 suggests a positive trend for 2023 and beyond. Although 2023 may still have some fluctuations, the company’s operational performance is improving, and there may be approximately $1 billion worth of share repurchases during the year. Evercore ISI believes that there are both fundamental and technical reasons to continue investing in Align Technology.

According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on Align Technology, Inc. (NASDAQ:ALGN), compared to 38 funds in the prior quarter. Brian Bares’ Bares Capital Management is the biggest stakeholder of the company, with 935,246 shares worth $197.2 million.

In addition to Abbott Laboratories (NYSE:ABT), HCA Healthcare, Inc. (NYSE:HCA), and DexCom, Inc. (NASDAQ:DXCM), Align Technology, Inc. (NASDAQ:ALGN) is one of the best medical stocks to invest in.

Meridian Contrarian Fund made the following comment about Align Technology, Inc. (NASDAQ:ALGN) in its Q4 2022 investor letter:

“Align Technology, Inc. (NASDAQ:ALGN), is a leader in the orthodontic industry that pioneered the clear aligner segment with its well-known Invisalign ™ product. Pandemic-related disruptions to earnings and the impact of tough foreign exchange rates on Align’s significant international business pushed the stock’s valuation to what we believed was an attractive level. We believe the company remains an industry leader and that clear aligners, which hold an industry penetration rate of roughly 15%, have a long runway for growth, so we initiated a position during the quarter.”

12. DaVita Inc. (NYSE:DVA)

Number of Hedge Fund Holders: 34

DaVita Inc. (NYSE:DVA) offers kidney dialysis services to patients in the United States who have chronic kidney failure. The company runs centers where patients can receive dialysis treatment and also provides laboratory services at outpatient dialysis centers. Additionally, DaVita Inc. (NYSE:DVA) provides hemodialysis services that can be done on an outpatient basis, in a hospital setting, or even at the patient’s own home. It is one of the best medical stocks to invest in.

On February 23, Gary Taylor, an analyst at Cowen, increased the target price on DaVita Inc. (NYSE:DVA) shares from $76 to $90 and maintained an Outperform rating. According to the analyst, the labor costs in Q4 did not experience a significant decline compared to the previous quarter, despite the company’s guidance in October. However, it is worth noting that DaVita Inc. (NYSE:DVA) has raised the lower end of its guidance, which suggests a positive outlook for the company’s future performance, the analyst wrote in a research note.

According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on DaVita Inc. (NYSE:DVA), compared to 30 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 36 million shares worth $2.7 billion.

Moon Capital made the following comment about DaVita Inc. (NYSE:DVA) in its Q4 2022 investor letter:

“During the fourth quarter, we purchased shares in DaVita Inc. (NYSE:DVA), a dialysis center operator. For those unfamiliar, kidney dialysis involves the critical removal of toxins, fluids and salts from the blood by artificial means. Roughly 500,000 patients receive kidney dialysis in the U.S., which requires a 3.5-hour treatment three times a week. The only alternatives to the treatments are a kidney transplant or potential fatality. Given the critical nature of its services, demand has little correlation with the overall economy, resulting in a highly recession resistant business.

The U.S. dialysis industry is highly concentrated, with two companies (DaVita and its competitor Fresenius) controlling a combined 80% of the $25 billion market. The dominance of this duopoly provides massive scale advantages, making it incredibly difficult for new entrants to gain profitable market share.

In the past, DaVita’s valuation has been penalized (we view unfairly) because the company generates a significant portion of its operating income from a small percentage of its patients. Of DaVita’s 200,000 patients, approximately 90% qualify for Medicare (or Medicaid), with the remaining 10% covered by a commercial insurance provider. While commercial insurers pay an average of $1,000 per treatment, the federal government’s pay rate for Medicare and Medicaid is only $275 – which is actually less than what it costs DVA to provide the treatment…”(Click here to read the full text)

11. AMN Healthcare Services, Inc. (NYSE:AMN)

Number of Hedge Fund Holders: 35

AMN Healthcare Services, Inc. (NYSE:AMN) provides healthcare workforce solutions and staffing services to hospitals and healthcare facilities in the United States. It operates through three segments – Nurse and Allied Solutions, Physician and Leadership Solutions, and Technology and Workforce Solutions. On February 16, AMN Healthcare Services, Inc. (NYSE:AMN) reported a Q4 non-GAAP EPS of $2.48 and a revenue of $1.13 billion, outperforming Wall Street estimates by $0.29 and $60 million, respectively.

On February 21, BMO Capital maintained an Outperform rating on AMN Healthcare Services, Inc. (NYSE:AMN) but lowered the firm’s price target on the shares to $109 from $130. The company posted a solid Q4 earnings beat with better-than-anticipated results across all three of its segments. While COVID-19 had a significant impact on AMN Healthcare Services, Inc. (NYSE:AMN)’s business, the company should continue to generate long-term growth once the pandemic is over, the firm wrote in a research note.

According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on AMN Healthcare Services, Inc. (NYSE:AMN), compared to 33 funds in the prior quarter. Steve Cohen’s Point72 Asset Management is the largest stakeholder of the company, with 902,000 shares worth $92.7 million.

Diamond Hill Capital made the following comment about AMN Healthcare Services, Inc. (NYSE:AMN) in its Q3 2022 investor letter:

“New positions initiated in Q3 included Ciena Corporation (long), AMN Healthcare Services, Inc. (NYSE:AMN) (short), CBIZ Inc (short), Asana (short) and Palomar (short). AMN Healthcare Services provides workforce solutions and staffing services at healthcare facilities. An unstable healthcare employment environment is driving pricing and volume growth for contract labor, which we believe is unsustainable.”

10. Bio-Rad Laboratories, Inc. (NYSE:BIO)

Number of Hedge Fund Holders: 42

Bio-Rad Laboratories, Inc. (NYSE:BIO) manufactures and distributes life science research and clinical diagnostic products in the United States, Europe, Asia, Canada, and Latin America. It is one of the best medical stocks to invest in. For FY 2023, Bio-Rad Laboratories, Inc. (NYSE:BIO) expects non-GAAP, currency-neutral revenue growth of approximately 6% to 7% and an estimated non-GAAP operating margin of about 19.5%.

On February 17, Credit Suisse raised the firm’s price target on Bio-Rad Laboratories, Inc. (NYSE:BIO) to $680 from $640 and reiterated an Outperform rating on the shares. In a research note to investors, the firm stated that despite Bio-Rad’s Q4 miss, the company’s positive business outlook more than makes up for it.

According to Insider Monkey’s fourth quarter database, 42 hedge funds were long Bio-Rad Laboratories, Inc. (NYSE:BIO), compared to 45 funds in the earlier quarter. Seth Rosen’s Nitorum Capital held the largest stake in the company.

9. AmerisourceBergen Corporation (NYSE:ABC)

Number of Hedge Fund Holders: 44

AmerisourceBergen Corporation (NYSE:ABC) is engaged in sourcing and distributing pharmaceutical products. Its U.S. Healthcare Solutions segment is responsible for distributing a range of healthcare products, including brand-name and generic pharmaceuticals, over-the-counter healthcare products, as well as home healthcare supplies and equipment. It is one of the best medical stocks to watch. For FY2023, AmerisourceBergen Corporation (NYSE:ABC)’s adjusted diluted EPS guidance has been raised from the previous range of $11.30 to $11.60 to a range of $11.50 to $11.75, while the consensus EPS came in at $11.52.

According to analyst Eric Coldwell from Baird, AmerisourceBergen Corporation (NYSE:ABC) performed well in a volatile market, reporting positive earnings with strong utilization in both the U.S. and international markets. The analyst is optimistic about AmerisourceBergen Corporation (NYSE:ABC)’s specialty and biosimilar products and believes that the company’s ability to deploy capital is impressive. As a result, the analyst raised AmerisourceBergen’s price target from $199 to $201 and maintained an Outperform rating on the shares on February 2.

According to Insider Monkey’s fourth quarter database, 44 hedge funds were bullish on AmerisourceBergen Corporation (NYSE:ABC), compared to 47 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the biggest position holder in the company.

Here is what Heartland Advisors has to say about AmerisourceBergen Corporation (NYSE:ABC) in its Q3 2021 investor letter:

“The ABCs of quality.AmerisourceBergen Corp. (ABC), a leading national pharmaceutical distributor, provides an example of our approach. The company has been quietly bolstering its business model during the past few years to include animal health products for the European market and an expanded line of higher-margin, value-added services that reach beyond drug distribution. During these efforts, valuations for the company have been under pressure due to liability issues stemming from opioid litigation as well as concerns about increased scrutiny of drug prices by politicians.

Our team has been following these developments and believes the strides management has made on the business side are not being fully recognized by the market. As more clarity has emerged related to opioid litigation, we’ve increased the portfolio’s stake in AmerisourceBergen and believe the investment provides the portfolio with additional exposure to a high-quality business that is well positioned to grow despite operating in a mature industry.”

8. Cardinal Health, Inc. (NYSE:CAH)

Number of Hedge Fund Holders: 50

Cardinal Health, Inc. (NYSE:CAH) is an integrated healthcare services and products company in the United States, Canada, Europe, Asia, and internationally. The company operates in two segments, Pharmaceutical and Medical. The Medical segment manufactures, sources, and distributes Cardinal Health branded medical, surgical, and laboratory products and devices.

On February 10, Cardinal Health, Inc. (NYSE:CAH) declared a $0.4957 per share quarterly dividend, in line with previous. The dividend is payable on April 15, to shareholders of record on April 3.

According to Insider Monkey’s fourth quarter database, 50 hedge funds were bullish on Cardinal Health, Inc. (NYSE:CAH), compared to 45 funds in the prior quarter. Richard S. Pzena’s Pzena Investment Management is the biggest position holder in the company, with 2.5 million shares worth $195.8 million.

Ariel Investment made the following comment about Cardinal Health, Inc. (NYSE:CAH) in its Q3 2022 investor letter:

“Additionally, distributor of pharmaceutical and medical products Cardinal Health, Inc. (NYSE:CAH) advanced in the period as leadership changes were viewed to be positive for shares. Management provided a new profit outlook for Fiscal 2023 and announced an improvement plan for the medical segment. We are encouraged by these changes and think CAH’s underlying fundamentals and competitive advantages around preventative maintenance screenings and medication management will continue to improve. We believe valuations of health care companies like CAH that focus on cost optimization and promote technological efficiency across the supply chain will be rewarded over the long term.”

7. McKesson Corporation (NYSE:MCK)

Number of Hedge Fund Holders: 54

McKesson Corporation (NYSE:MCK) provides healthcare services in the United States and internationally. It operates through four segments – U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions. McKesson Corporation (NYSE:MCK) raised its 2023 guidance range for non-GAAP EPS to $25.75 to $26.15, up from $24.45 to $24.95, while the consensus came in at $24.80. It is one of the top medical stocks to consider.

On February 2, Morgan Stanley analyst Erin Wright raised the firm’s price target on McKesson Corporation (NYSE:MCK) to $426 from $420 and reiterated an Overweight rating on the shares. Despite Q3 being less operationally active than anticipated, the firm believes that McKesson Corporation (NYSE:MCK) shares will rise due to stronger expectations of core profit growth.

According to Insider Monkey’s fourth quarter database, 54 hedge funds were bullish on McKesson Corporation (NYSE:MCK), compared to 51 funds in the earlier quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 2.85 million shares worth over $1 billion.

Broyhill Asset Management made the following comment about McKesson Corporation (NYSE:MCK) in its Q4 2022 investor letter:

“Shares of McKesson Corporation (NYSE:MCK) gained 50% for the twelve months ending December 2022, as opioid-related litigation concerns, which weighed on the stock for years, took a back seat to strong operating performance. When we first established the position in 2018, we explained that, “Although headlines remind us daily of growing threats to the business, the actual probability of this business dramatically changing in the next five years is much lower than the perceived probability. We are simply betting that the future might not be as bad as the price suggests.”

Consensus FY22 and FY23 EPS estimates at the time were around $17 – $18 per share. The company reported ~ $24 in earnings in FY22, and is on pace for $26 in FY23, even as consensus estimates for the broader market were repeatedly revised lower. We continued to trim our position throughout the year as shares rerated higher from ~ 8x earnings in FY18 to ~ 16x earnings at recent highs.”

6. Boston Scientific Corporation (NYSE:BSX)

Number of Hedge Fund Holders: 57

Boston Scientific Corporation (NYSE:BSX) was incorporated in 1979 and is headquartered in Marlborough, Massachusetts. The company develops, manufactures, and markets medical devices for use in various interventional medical specialties worldwide. On February 3, Boston Scientific Corporation (NYSE:BSX) received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for its LithoVue Elite Single-Use Digital Flexible Ureteroscope System. According to the company, this is the first system of its kind that can track intrarenal pressure in real-time during ureteroscopy procedures.

In a sector note on the U.S. Medical Supplies and Devices, UBS analyst Danielle Antalffy initiated coverage of Boston Scientific Corporation (NYSE:BSX) with a Buy rating and a $57 price target on March 28.

According to Insider Monkey’s fourth quarter database, 57 hedge funds were long Boston Scientific Corporation (NYSE:BSX), compared to 53 funds in the prior quarter. Andreas Halvorsen’s Viking Global is the largest stakeholder of the company, with 9.5 million shares worth $440.8 million.

Like Abbott Laboratories (NYSE:ABT), HCA Healthcare, Inc. (NYSE:HCA), and DexCom, Inc. (NASDAQ:DXCM), Boston Scientific Corporation (NYSE:BSX) is one of the top medical stocks to invest in.

Here is what Artisan Partners specifically said about Boston Scientific Corporation (NYSE:BSX) in its Q2 2022 investor letter:

“We took advantage of Boston Scientific Corporation (NYSE:BSX)’s share price pullback during the quarter. We believe the company is well-positioned to benefit from an expected return of elective medical procedures and several innovative product profit cycles in the periods ahead. Meanwhile, the company’s health care end market could prove relatively resilient in a recession scenario.”

Click to continue reading and see 5 Best Medical Stocks To Invest In.

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Published on May 1, 2024 at by Inan Dogan, PhD

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