In this article, we discuss the 10 best healthcare stocks to buy.
In the initial months of the pandemic, the S&P 500 Healthcare index outperformed the S&P 500 by 6.85 percentage points. Moreover, the healthcare industry has grown at a CAGR of roughly 5% from 2012 to 2019, according to a report published by McKinsey & Company.
As the financial market becomes more volatile, retirees often seek refuge in stocks offering long-term growth. According to a report published by Pew Research, in higher-income families, people above 55 and older invest over a quarter of their assets in the stock market. The healthcare industry presents a solid opportunity for investment amid various dividend-paying companies and stocks that have long-term growth potential on the back of the disruptive technologies they are working on.
According to a report published by Insider Intelligence, the global healthcare market is expected to reach $11,908.9 million by 2022, while healthcare expenditure will reach $6.2 trillion by 2028. One of the many factors that contribute to this growth is the demand for telehealth, which comes with enhanced patient engagement, reduced costs, and access to areas with low medical care.
With the onset of Covid-19, there has been seen growth in telehealth services. As published by McKinsey & Company, the number of consumers likely to use telehealth jumped to 76% in 2020 from only 11% in 2019. Some of the notable healthcare stocks include UnitedHealth Group Incorporated (NYSE:UNH), Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), Medtronic plc (NYSE:MDT), and Pfizer Inc. (NYSE:PFE).
Our Methodology:
Let’s analyze our list of the best healthcare stocks to buy. The stocks mentioned below are selected on the basis of their dividend policy and long-term growth potential. Along with this, we also took into account hedge fund sentiment and basic fundamentals while choosing these stocks.
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Why pay attention to hedge fund sentiment while choosing stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by wide margins. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Retirement Stock Portfolio: 10 Healthcare Stocks To Consider
10. Cardinal Health, Inc. (NYSE:CAH)
Number of Hedge Fund Holders: 40
Cardinal Health, Inc. (NYSE:CAH), an American healthcare services company, ranks tenth on our list of the best healthcare stocks to buy. Recently, the company signed an agreement with Journey Biosciences, a biotech company, to improve diabetic care through medical diagnostic screening technology.
At the end of Q2, Pzena Investment Management is the largest shareholder of Cardinal Health, Inc. owning roughly 3 million shares. In addition to this, 40 hedge funds tracked by Insider Monkey reported having stakes in the company in Q2, up from 39 in the previous quarter. The total value of these stakes is $897.2 million.
In fiscal Q4 2021, Cardinal Health, Inc. reported revenue of $42.6 billion, beating the estimates by $2.35 billion. The company has a track record of 34 years of dividend growth and pays an annual dividend of $1.96 per share, yielding 4.04%.
Like UnitedHealth Group Incorporated, Johnson & Johnson, Merck & Co., Inc., Medtronic plc (NYSE:MDT), and Pfizer Inc., Cardinal Health, Inc. is also one of the notable stocks to buy.
9. Becton, Dickinson, and Company (NYSE:BDX)
Number of Hedge Fund Holders: 52
Jason Bednar of Piper Sandler sees positive growth for Becton, Dickinson, and Company (NYSE:BDX) as the company received an FDA approval for its at-home Covid-19 test. In August, the firm lifted its price target on the stock to $285, with an Overweight rating on the shares. Becton, Dickinson, and Company ranks ninth on our list of the best healthcare stocks to buy.
Becton, Dickinson, and Company, an American medical tech company, has been growing its dividend for the past 50 years and currently pays an annual dividend of $3.32 per share, yielding 1.37%. In fiscal Q3 2021, the company posted an EPS of $2.74, beating the estimates by $0.30.
Fundsmith LLP is the largest shareholder of Becton, Dickinson, and Company as of Q2 2021, with shares worth over $1.05 billion. Overall, 52 hedge funds tracked by Insider Monkey have stakes in the company in Q2, compared with 65 in the previous quarter. The total value of these stakes is $3.33 billion.
Like UnitedHealth Group Incorporated, Johnson & Johnson, Merck & Co., Inc., Medtronic plc (NYSE:MDT), and Pfizer Inc., Becton, Dickinson, and Company is also favored by investors in 2021.
Madison Funds mentioned Becton, Dickinson, and Company in its Q2 2021 investor letter. Here is what the firm has to say:
“Becton, Dickinson and Company (“BD”) is one of the world’s largest medical supply, devices, laboratory equipment, and diagnostic products manufacturers. We like BD because it is a leader in the medical and life science industries with a durable mid-single digit growth profile and attractive returns on capital. They generate about 85% of revenue from consumables and 15% from equipment, and each year, they manufacture billions of needles,
syringes, catheters, tubes, and medical devices which results in significant economies of scale that can be matched by few competitors. Their Life Sciences segment produces products that provide diversity in the steadily growing diagnostic testing and life sciences research fields.Regarding the short-term issues, it’s been a challenging past 18 months for the company. In February 2020, they announced the FDA required an updated 510(k) clearance for their Alaris infusion pump. As a result, BD had to suspend selling new pumps until the updated regulatory filing received FDA clearance. In addition to the regulatory headwind, BD’s business was negatively impacted by the COVID-19 pandemic as individuals postponed doctor office visits and hospitals deferred non-emergency medical procedures. We believe these postponements are just now normalizing. Lastly, while BD’s Life Sciences business swiftly brought COVID-19 tests to market, there is uncertainty over the magnitude and duration of these revenues…” (Click here to see the full text)
8. Amgen Inc. (NASDAQ:AMGN)
Number of Hedge Fund Holders: 53
Amgen Inc. (NASDAQ:AMGN) is an American biopharmaceutical company with headquarters in California, U.S. In Q2, the hedge fund sentiment was positive for the company as 53 hedge funds tracked by Insider Monkey reported owning positions in the company, up from 47 in the previous quarter. These stakes are valued at over $1.65 billion. Amgen Inc. ranks eighth on our list of the best healthcare stocks to buy.
Recently, Christopher Raymond of Piper Sandler appreciated the efficacy of the company’s monoclonal antibody, AMG 451, for the treatment of atopic dermatitis in adults. The firm lifted its price target on Amgen Inc. to $255, with an Overweight rating on the shares. In Q2 2021, Amgen Inc. posted an EPS of $4.32, beating the estimates by $0.37.
Amgen Inc. pays an annual dividend of $7.04 per share, yielding 3.42%. The company has a track record of 10 years of consistent dividend growth, with a dividend payout ratio of 42.41%.
Like UnitedHealth Group Incorporated, Johnson & Johnson, Merck & Co., Inc., Medtronic plc (NYSE:MDT), and Pfizer Inc., Amgen Inc. is one of the notable healthcare stocks to invest in.
7. Eli Lilly And Co (NYSE:LLY)
Number of Hedge Fund Holders: 64
Eli Lilly And Co (NYSE:LLY), an American pharmaceutical company, generated stable results for shareholders over the years. In the past year, the stock gained 69.3%, while its year-to-date returns stood at 46.08%. Eli Lilly And Co ranks seventh on our list of the best healthcare stocks to buy.
Founded in 1876, Eli Lilly And Co pays an annual dividend of $3.40 per share, yielding 1.41%. The company has been increasing its dividend for the past 7 years, with a dividend payout ratio of 42.88%. Recently, Berenberg lifted its price target on Eli Lilly And Co to $270, while upgrading the stocks to Buy. The firm’s analyst appreciated the company’s long-term sales growth.
As of Q2 2021, 64 hedge funds tracked by Insider Monkey have stakes in Eli Lilly And Co, valued at roughly $3 billion. In the previous quarter, 55 hedge funds had stakes in the company, which shows a positive hedge fund sentiment in Q2.
In addition to UnitedHealth Group Incorporated, Johnson & Johnson, Merck & Co., Inc., Medtronic plc (NYSE:MDT), and Pfizer Inc., investors and analysts are also paying attention to Eli Lilly And Co amid the company’s long-term growth potential.
Baron Fund mentioned Eli Lilly And Co in its Q2 2021 investor letter. Here is what the firm has to say:
“We started a position in Eli Lilly and Company, a large-cap pharmaceutical company. We think Lilly has a healthy base business with limited near-term patent expirations, a strong pipeline, and potential for significant margin expansion, which should translate to high single-digit revenue growth and mid-teens earnings growth over the next five years. Lilly’s pipeline includes donanemab, a potential blockbuster drug which the company is developing for Alzheimer’s disease and which recently received Breakthrough Therapy Designation by the FDA.”
6. CVS Health Corp (NYSE:CVS)
Number of Hedge Fund Holders: 67
CVS Health Corp (NYSE:CVS) is an American healthcare company with businesses in pharmacy and health insurance as well. On October 5, the company’s board announced a quarterly dividend of $0.50 per share, yielding 2.39%. CVS Health Corp has a dividend payout ratio of 26.67%. The company ranks fifth on our list of the best healthcare stocks to buy.
At the end of Q2, Harris Associates was the largest shareholder of CVS Health Corp, owning over 8.5 million shares. In addition, 67 hedge funds tracked by Insider Monkey were bullish on the company in Q2, up from 62 in the previous quarter. The total value of these stakes is $1.35 billion.
This August, Morgan Stanley lifted its price target on CVS Health Corp to $114, with an Overweight rating on the shares. The stock delivered a 21.22% return in 2021, while it gained 44.3% in the past year.
CVS Health Corp is also one of the notable stocks to invest in like UnitedHealth Group Incorporated, Johnson & Johnson, Merck & Co., Inc., Medtronic plc (NYSE:MDT), and Pfizer Inc..
ClearBridge Mentioned CVS Health Corp in its Q2 2021 investor letter. Here is what the firm has to say:
“Our differentiated positions in the health care sector also made strong contributions as the market began to reward the heavily discounted sector.CVS Health saw strength in its pharmacy benefits manager business as well as its managed care business, Aetna, helping to confirm our positive view of CVS’s repositioning of its business model from a dispensary model to a service model. With CVS store-based health care services offering patients better convenience, encouraging better health care compliance and ultimately lower costs, we believe the company is at the forefront of a changing mindset in the health care services sector.”
5. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 65
Matthew Harrison of Morgan Stanley raised his 2022 EPS estimates for Pfizer Inc. to $4.57, due to the company’s importance in the Covid-19 vaccine booster shots. In October, the firm lifted its price on the stocks to $48, with an Equal Weight rating on the shares. Pfizer Inc. stands fifth on our list of the best healthcare stocks to buy.
Pfizer Inc. is an American multinational pharmaceutical and biotech company. At the end of Q2, Kahn Brothers was the largest shareholder of Pfizer Inc., with shares worth $32.2 billion. Overall, 65 hedge funds tracked by Insider Monkey reported owning stakes in the company in Q2, up from 65 in the previous quarter. The total value of these stakes is $2.35 billion.
Pfizer Inc. has a 12-year track record of dividend growth. The company pays an annual dividend of $1.56 per share, yielding 3.70%. Pfizer Inc. expects to generate $33.5 billion in Covid-19 vaccine revenue.
ClearBridge Investments mentioned Pfizer Inc. in its Q1 2021 investor letter. Here is what the firm has to say:
“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold Pfizer in late 2020, in the health care sector.”
4. Medtronic plc (NYSE:MDT)
Number of Hedge Fund Holders: 68
Medtronic plc (NYSE:MDT) ranks fourth on our list of the best healthcare stocks to buy. The number of hedge funds tracked by Insider Monkey having stakes in the company increased in Q2 to 68, from 61 in Q1. The total value of these stakes is over $3.39 billion. Diamond Hill Capital is the largest shareholder of Medtronic plc (NYSE:MDT) in Q2, with shares worth $571 million.
Medtronic plc (NYSE:MDT), a medical device company, has a track record of consistent dividend growth. The company currently pays an annual dividend of $2.52 per share, yielding 2.06%. In fiscal Q1 2021, the company posted an EPS of $1.41, beating the estimates by $0.09. Recently, Piper Sandler lifted its price target on Medtronic plc (NYSE:MDT) to $152, while keeping an Overweight rating on the shares. The stock delivered a 12.55% return to shareholders in the past year.
3. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 79
Merck & Co., Inc. recently made waves as WHO announced to purchase the company’s Covid-19 pill as a part of its broader program. The company ranks third on our list of the best healthcare stocks to buy.
In October, Morgan Stanley lifted its price target on Merck & Co., Inc. to $88, with an Equal Weight rating on the shares. The firm’s analyst, Matthew Harrison also raised his EPS estimates for 2022 to $8.00. Merck & Co., Inc. pays an annual dividend of $2.60 per share, yielding 3.29%. The company’s dividend payout ratio stands at 43.77%.
Of the 873 elite funds tracked by Insider Monkey, 79 hedge funds have positions in Merck & Co., Inc. in Q2, the same as in the previous quarter. The total value of these stakes is over $5.29 billion.
Artisan Partners mentioned Merck & Co., Inc. in its Q1 2021 investor letter. Here is what the firm has to say:
“In Q1, we initiated a position in Merck, a provider of health care solutions including prescription medicines, vaccines, biologic therapies, animal health and consumer care products. We purchased Merck when the stock came under pressure in part on concerns that the newly minted Biden administration could implement regulatory changes and lower drug costs in the pharmaceutical industry. Recent, but anticipated changes to Merck’s management team have also weighed on shares, as have concerns over the company’s heavy reliance on immunotherapy treatment Keytruda. Notably, Merck is not getting much credit from investors for the 60+ programs it has in clinical development, despite having several solid and large new product opportunities. Additionally, the company’s strong balance sheet and robust free cash flow provide it multiple options for future partnerships and acquisitions. While Merck is undergoing a period of transition, we think the company’s fundamentals are strong and believe changes to management should be a catalyst for improvement.”
2. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 88
Johnson & Johnson, a multinational healthcare and pharmaceutical company, reported $502 million vaccine revenue in Q3 2021. In its recently announced Q3 results, the company posted an EPS of $2.60, versus the estimates of $2.35. Johnson & Johnson ranks second on our list of the best healthcare stocks to buy.
At the end of Q2, Fundsmith LLP was the largest shareholder of Johnson & Johnson, with shares worth $1.17 billion. In addition to this, 88 hedge funds tracked by Insider Monkey were bullish on the company in Q2, valued at over $7 billion. In the previous quarter, 81 hedge funds had positions in Johnson & Johnson, highlighting a positive hedge fund sentiment.
Johnson & Johnson has a track record of 60 years of dividend growth. The company pays an annual dividend of $4.24 per share, yielding 2.57% and with a dividend payout ratio of 52.8%. This September, Wells Fargo lifted its price target on Johnson & Johnson to $187, with an Equal Weight rating on the shares.
Distillate Capital mentioned Johnson & Johnson in its Q2 2021 investor letter. Here is what the firm has to say:
“The largest additions in the rebalance, Johnson & Johnson was around 50 and 40 basis points incrementally. J&J underperformed in the quarter while its normalized free cash flows held steady and so its position size was topped off to match the stable cash flows.”
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 105
UnitedHealth Group Incorporated tops our list of the best healthcare stocks to buy. The company announced its Q3 results on October 14 and posted an EPS of $4.52, beating the estimates by $0.10. UnitedHealth Group Incorporated reported revenue of $72.33 billion, up11.1% from the prior-year quarter.
UnitedHealth Group Incorporated is a healthcare and insurance company, based in Minnesota, U.S. The company has a track record of 12 years of consistent dividend growth and currently pays a dividend of $5.80 per share, yielding 1.36%. UnitedHealth Group Incorporated has increased its dividend by 68% in the past three years. Recently, Evercore ISI lifted its price target on UnitedHealth Group Incorporated to $480, with an Outperform rating on the shares.
At the end of Q2, GQG Partners was the largest shareholder of UnitedHealth Group Incorporated, with shares worth $1.48 billion. Overall, 105 hedge funds tracked by Insider Monkey reported owning stakes in the company in Q2, up from 89 in the previous quarter. These stakes are valued at over $13 billion.
Wedgewood Partners mentioned UnitedHealth Group Incorporated in its recently mentioned Q3 2021 investor letter. Here is what the firm has to say:
“UnitedHealth Group detracted from performance due to investor concerns about Medicare premiums as well as post-COVID medical cost trends. Medicare enrollment should continue to grow at double-digits at UnitedHealthcare. Meanwhile the Company’s Optum segment should be able to help bend the cost curve if indeed post-COVID volumes pick up to above pre-COVID levels. In any case, we do not think the long-term normalized trend of medical care in the U.S. has changed substantially and would look to add to our new position on any continuing short-term concerns.”
You can also take a look at 10 Best Healthcare Dividend Stocks and 10 Cheap Healthcare Stocks To Buy Now.
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This article is originally published at Insider Monkey.
