Most investors should be curious about the best health care stocks to buy. Along with college tuition, health care is one of the few economic segments where spending has risen faster than inflation.
While both of these trends are fundamentally unsustainable, as long as Americans’ own health care bills keep soaring, individual investors may as well profit from the sector themselves.
Even with a dramatic re-tooling of health care through “Medicare for All” proposals taking center stage in the 2020 election, cheap stocks still abound in this corner of the markets.
In a sector with enormous variety, here are the 10 best health care stocks to buy for 2019.
CVS Health Corp.
In late 2018, CVS completed its acquisition of Aetna, in a move designed to diversify the company and construct a transformative health care player. Thankfully for value investors, shares of CVS are down in 2019 as the company tries to digest the $70 billion merger. The long-term plan to promote CVS MinuteClinic use for Aetna-insured patients should cut costs and boost margins for the Aetna division, while driving more foot traffic – and therefore prescription and retail sales – is savvy. Sure, it can take some intestinal fortitude to buy a stock that’s down recently, but with shares paying a 3.5% dividend and CVS trading under eight times forward earnings, CVS is one of the best health care stocks to buy for 2019.
Although one would think the CVS-Aetna marriage might be deadly for smaller health insurers, Centene is doing just fine. This St. Louis-based health insurer has a niche focus on the uninsured and underinsured, including government-subsidized programs like Medicaid. Obamacare’s Medicaid expansion significantly expanded that addressable market, giving CNC a natural boost and making it one of the best health care stocks to buy. Now discounted from its price a year ago, Wall Street expects revenue to jump 23% in 2019. As a pharmacy benefit manager, CNC also offers a vital service for its customers, negotiating lower drug prices via volume buying – and then taking a cut for itself.
Johnson & Johnson
The reason for JNJ’s inclusion on this list is the same reason it was named as one of U.S. News’ 10 best stocks to buy for 2019: Johnson & Johnson is an unparalleled Steady Eddie-type stock useful in almost any portfolio. While broadly diversified among the medical devices, consumer and pharmaceutical divisions, it’s the latter that constitutes 45% of overall sales – and is JNJ’s fastest-growing segment. Free cash flow exceeded $18 billion in 2018, and it’s this sort of reliable (and massive) cash generation that allows JNJ to keep its edge through research and development and acquisitions. It also helps finance regular stock buybacks and dividend payments.
Icon is a clinical research company, helping drugmakers, medical device manufacturers and others to navigate, coordinate and conduct the all-important clinical trials that regulators in the U.S., Europe and other markets require before going to market. An essential service that’s often cheapest when outsourced, conducting clinical trials is essential to the two disparate areas of scientific advancement and capitalistic profits. Wall Street expects a modest 8% revenue growth rate this year, but a steadily growing business and a 21% return in the first seven months of the year has made the $8 billion-plus research company one of the best health care stocks to buy for 2019.
Like CVS, AbbVie is suffering a post-merger hangover after its move in June 2019 to acquire Allergan (AGN), the maker of Botox, for $63 billion. Although the deal was merely announced, not approved and closed, it’s being done because AbbVie’s blockbuster drug Humira, is going off-patent in the U.S. in 2023. Despite underperformance this year, insiders began snapping up shares as soon as ABBV stock hit the $67 level post-announcement, a bullish indicator showing that people actually running the company are putting their money where their mouths are. So-called chartists should wait until ABBV definitively hits bottom and starts rebounding, but with a forward price-earning ratio of 7.2 and a dividend of 6.4%, AbbVie shares also offer a compelling valuation now.
Zoetis, which was spun off from Pfizer (PFE) in 2013, is the largest maker of pet and livestock vaccinations and medicine on earth. Not only will cows, chickens, pigs and other livestock continue to need tending, but the popularity of companion animals (read: pets) is also growing rapidly. That’s showing up in the numbers; sales rose 7% last quarter, but companion animal product sales jumped 24%. This largely millennial-driven adoption of pets helps make Zoetis one of the best health care stocks to buy. The acquisition of diagnostics company Abaxis helped drive some of its pet segment growth, as did dermatology products and flea and tick treatments.
Next up is a $17 billion medical devices company. Align Technology makes Invisalign, the popular invisible orthodontic product that’s increasingly taking share from braces as a less invasive way to correct crooked teeth. First off, ALGN is an out-and-out growth stock, making it more prone to occasional major price swings. Shares recently slumped 25% in one day after second-quarter earnings, in which concerns over soft future demand in China spooked shareholders. Zero debt, combined with multiple years of expected 20%-plus growth and a large stake in up-and-coming competitor Smile Direct Club, underscore why ALGN is one of the best health care stocks to buy for 2019. ALGN announced an accelerated $200 million share buyback to take advantage of the recent pullback.
Becton Dickinson and Co.
One of the more conservative names on this list, Becton Dickinson has spent well over 100 years earning its status as one of the top health care stocks to invest in. Founded in 1897, BDX is a leader in medical supplies and diagnostics, selling everything from anesthesia needles and antiseptic products to cervical cancer screening systems and kits for cell analysis. One of the rare so-called “dividend aristocrats” to raise its dividend at least 25 consecutive years, BDX has been increasing its payout annually since Nixon was president. Becton Dickinson predicts full-year revenue growth between 5% and 6% in 2019, and earnings per share advancing 6% to 7% – even with currencies moving against it.
The penultimate name on this list is Anthem, which still looks like one of the best health care stocks to buy for 2019, even after a solid start to the year. The $77 billion plan provider trades at a quite fair 13 times forward earnings, paying a modest 1.1% dividend to boot. Importantly, ANTM has been working on developing its own pharmacy benefit manager business, which Anthem plans to roll out in 2020. This can only improve Anthem’s long-term growth prospects, and in the consolidating health insurance space, ANTM occupies an enviable position as the second-most valuable publicly traded health insurer.
Oddly enough, even with a market cap around $15 billion, BioMarin arguably remains one of the riskiest investments on this list. That’s simply the nature of biotech stocks generally, and as a company specializing in rare-disease or “orphan” drugs, there’s inherent risk in BMRN. If you spend all your money on R&D for a drug that doesn’t gain FDA approval, for example, that’s a bit of a setback. BMRN has been successful long-term however, and with seven drugs on the market, two in Phase 3 trials and three in earlier parts of development, it appears sufficiently diversified. Between 2007 and 2019, sales grew from $22 million a quarter to $400 million, and shares have advanced nearly five-fold. Revenue is expected to double again between 2018 and 2022.