McKesson Corporation (MCK), Intuitive Surgical, Inc. (ISRG): Lucrative Healthcare Stocks for Your Portfolio

The healthcare industry faces major political headwinds, but demographics are a far more powerful force in the long-term. Political regimes only last for a few years in the United States, but demographics have trajectories that play out as expected over decades. For healthcare, an aging population is a strong overarching force that will drive revenue for years to come.

As people live longer, they will require more care, more surgery, more drugs, and more treatments. With the right investments, you can set your portfolio up to benefit from the big picture despite short or mid-term political risks. Healthcare stocks come in all varieties, from safe to high growth, and a varied strategy can pay off big over time.

McKesson Corporation (NYSE:MCK)

Safe, traditional, and huge

McKesson Corporation (NYSE:MCK) is a massive $120 billion market cap company, which announced that over the next 10 years, business for the entire industry could double. That is not just for McKesson Corporation (NYSE:MCK) but also its competitors. McKesson has enough of a presence to grab the lion’s share of the growth if it can make the right decisions. That does not even mean taking risky decisions.

I think McKesson Corporation (NYSE:MCK)’s biggest draw is that it is almost buy-and-forget. You can take your position and just check in occasionally. The current price matters very little if you have a long-term outlook, and you can just take a position when ready. That may seem oversimplified, but McKesson Corporation (NYSE:MCK) has the benefit of being a well run company, with solid revenue growth, consistent free cash flow, and is in an industry with positive long-term forces behind it.

Healthcare companies hit snags every now and then from politics or other issues, but healthcare, as a whole, is growing and will persist for as long as humans are biological.

McKesson Corporation (NYSE:MCK) grows revenue pretty fast considering how large it is. With 11% revenue growth expected in 2014, I do not see any reason to defer taking a position in McKesson Corporation (NYSE:MCK) if you are building a long-term retirement portfolio. Even if 11% is a bit on the higher end, I would be fine if the number came in at over half that.

Don’t fight the future

Robots are the future, despite the recent problems faced by Intuitive Surgical, Inc. (NASDAQ:ISRG). Once the robots take over, you can fight the future and take down SkyNet all you want, but for now, robots will become more important in all corners and healthcare is not immune from this.

I fully expect robots to be used in more and more surgeries as the technology and techniques are improved. That does not mean automated surgery, though lets not rule that out permanently, but robot-assisted surgery or remote surgery.

Intuitive Surgical, Inc. (NASDAQ:ISRG) is being looked at by the FDA, though I think it will be fine in the long run. A recent letter led to the company reducing its sales forecast. Nothing suggests that procedures need to stop. Some of the FDA’s complaints seem to focus on simple documentation and training of surgeons, which is a big but easily fixable issue. The issues regarding poor reporting of incidents is more worrisome, but I still think the issues will be sorted in a few months if not sooner.

Intuitive Surgical, Inc. (NASDAQ:ISRG) makes money for each procedure performed, and not just sales of the machines, parts, and support contracts. I expect Intuitive Surgical, Inc. (NASDAQ:ISRG) to be plagued by these problems for the next year, but it is a leader in robotic surgery. I think robotic surgery will grow over the next few decades.

Intuitive Surgical, Inc. (NASDAQ:ISRG) is at the forefront of this, but faces some headwinds right now. The recent decline in the share price following the FDA report is a good time to take your initial position. Writing some puts lower might be worth it since the FDA might have more complaints later. The probe is not over.