10 of the best health care stocks to buy for 2020

Here's a look at some of the top 2020 health care stocks to buy, and how those picks have performed.

  • By John Divine,
  • U.S. News & World Report
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The record-long bull market came to a sudden end in the early part of 2020 as the recent pandemic hit Wall Street. Historically speaking, the health care sector tends to perform well late in the economic cycle and even hold firm in recessions, offering a welcome reprieve in challenging markets like the one that investors find themselves in today. As society races for a treatment or cure for COVID-19, this sector is more relevant than ever. Here are 10 of the best health care stocks to buy for 2020, and a look at how they’ve performed year-to-date through April 21. While they've collectively fallen, as a portfolio, they're beating the S&P 500 (.SPX), -10.9% to -15.3%.

DaVita

First of the best health care stocks to buy for 2020 is DaVita (DVA), a $9 billion Denver-based company with a network of nearly 2,700 outpatient dialysis centers. Last quarter alone, DVA provided kidney dialysis services for more than 200,000 patients with chronic kidney failure or end-stage renal disease. Trading for 12 times forward earnings, analysts expect DVA to grow earnings per share at an 18% annualized rate over the next five years, partially driven by a $2 billion stock buyback program. Warren Buffett also happens to be a fan of DVA, owning about 30% of the company via Berkshire Hathaway (BRK/B).

DVA year-to-date return (through 4/21/20): -3.3%

S&P 500 YTD return: -15.3%

Novartis

Also named one of the best blue-chip stocks to buy for 2020, $200 billion Swiss drugmaker Novartis (NVS) is a global pharma powerhouse that most health care investors should know well. NVS finished 2019 with 15 different drugs grossing at least $1 billion a year. Cosentyx (plaque psoriasis, psoriatic arthritis treatment) and Gilenya (multiple sclerosis) each grossed more than $3 billion in 2019. CEO Vasant "Vas" Narasimhan, who took over in 2018, is proving to be an aggressive leader – a necessary trait in the fast-moving, cutthroat pharma industry. A recent agreement to acquire The Medicines Co. for $9.7 billion gives Novartis a potential blockbuster cardiovascular drug that should be put before U.S. and European regulators this year.

NVS YTD return: -3.4%

S&P 500 YTD return: -15.3%

IDEXX Laboratories

IDXX (IDXX) has roughly tripled over the last five years, and yet it still has room to outperform over the next five. That’s because few companies have the steady growth profile of an IDEXX Laboratories, the unassuming Maine diagnostics company that carved out its niche in the field of animal care. Not all of the best health care stocks to buy for 2020 have to be focused on health care for humans, after all, and the growing demand for pets in the U.S. has led to booming demand for veterinary instruments, tests and imaging equipment. IDEXX also makes products for the livestock industry, and though shares aren’t cheap at 50 times earnings, analysts expect this growth stock to keep growing, forecasting annualized EPS growth of 18.5% for the next five years.

IDXX YTD return: -0.1%

S&P 500 YTD return: -15.3%

AbbVie

A list of the best health care stocks to buy for 2020 wouldn’t be complete without AbbVie (ABBV), a $120 billion drugmaker that was also named one of the 10 best overall stocks to buy for 2020. While AbbVie doesn’t have the growth potential that a company like Idexx enjoys, ABBV does make the best-selling drug in the world (Humira). And after its $63 billion acquisition deal for Allergan (AGN), it now owns Botox as well. Trading for less than nine times forward earnings and with a 5.6% dividend, ABBV looks like a good bet for income investors who enter 2020 with few options as interest rates have yet again returned to record lows.

ABBV YTD return: -6.6%

S&P 500 YTD return: -15.3%

Anthem

Indianapolis-based health insurer Anthem (ANTM) is also one of the best health care stocks to buy for 2020, making the list for a second consecutive year. In simple terms, ANTM stock just trades a little too cheaply compared to its peers, boasting a price-earnings growth (PEG) ratio below one, at 0.88. A lower ratio indicates investors are paying less for future growth, and the next-cheapest peer has a PEG ratio of 1.1. Fears of “Medicare for All,” which may have been holding shares back, are now minimized with the moderate wing of the Democratic Party represented in the general election by former Vice President Joe Biden. With analysts expecting earnings to compound at a 16% clip for the next five years, Wall Street expects Anthem’s business to continue to thrive despite the pandemic.

ANTM YTD return: -17.1%

S&P 500 YTD return: -15.3%

Takeda Pharmaceutical

It’s remarkable more people don’t marvel at Japan’s Takeda Pharmaceutical (TAK), which has been around since 1781 – far longer than any other company on this list. But don’t jump to any conclusions: Takeda has no trouble keeping pace with modern markets, levering up for a megadeal to acquire biotech company Shire for $62 billion in 2018. TAK might not be one of the best health care stocks to buy for 2020, if not for the market’s skeptical reaction to the merger. Shares are still about 50% below TAK's 2018 levels. Recent results look promising though, as year-over-year revenue rose nearly 83% in the last quarter. TAK is selling non-core divisions to pay down debt and remains on track with its deleveraging plans. Takeda pays a 4.9% dividend and boasts a globally diversified portfolio of drugs for gastroenterology, rare diseases, immunology, oncology and neuroscience.

TAK YTD return: -14.4%

S&P 500 YTD return: -15.3%

CVS Health Corp.

CVS (CVS), the $80 billion pharmacy and health plan provider (remember, it snapped up Aetna in late 2018) is a "steady Eddie" that conservative investors can rely on. CVS’ goals aren’t humble: The company aims to transform health care by making it more accessible, personalized and cheaper than ever. During the pandemic, it could be an integral part of society’s eventual rebound. Before the pandemic, CVS began rolling out HealthHUBs, store sections featuring health classes, nutrition seminars, dietician access and other health-focused products and services. Management expects earnings growth to slowly accelerate, reaching low double-digits in 2022. CVS stock trades for eight times forward earnings and pays a 3.2% dividend.

CVS YTD return: -18.4%

S&P 500 YTD return: -15.3%

Cigna Corp.

Interestingly, Cigna (CI) was once destined to merge with another company on this list, Anthem, but the U.S. Department of Justice and the courts ultimately blocked it on antitrust grounds, and Anthem subsequently dropped the acquisition. But don’t let that prevent you from buying a solid $70 billion health care stock trading at about nine times forward earnings. Cigna’s Collaborative Accountable Care (CAC) initiative is an innovation in the industry, financially incentivizing providers for good health care quality and outcomes. Analysts expect low-teens earnings growth going forward, and shares have held up extremely well relative to the market as a whole in 2020.

CI YTD return: -13%

S&P 500 YTD return: -15.3%

Intercept Pharmaceuticals

Each of the best health care stocks to buy for 2020 have so far been established, consistently profitable companies with reasonably predictable business trajectories. Intercept (ICPT), as a $2.6 billion biotech business, deviates from that model, offering a fairly large potential payoff along with higher risk. That’s meant underperformance for ICPT in 2020, sparked in part by a delayed timeline for regulators – brought on by the current global pandemic – in reviewing ICPT’s treatment for fibrosis due to nonalcoholic steatohepatitis. The U.S. Food and Drug Administration is shooting to approve or deny the drug – which analysts believe could become a $1 billion drug by 2024 – by sometime this summer, although delays could continue. Until approval, ICPT is a one-drug company, with sales of Ocaliva, its chronic liver disease treatment, up 40% in 2019.

ICPT YTD return: -34.8%

S&P 500 YTD return: -15.3%

Johnson & Johnson

The last health care stock to buy for 2020 is a familiar name: Johnson & Johnson (JNJ), the most valuable publicly traded company in the entire sector. In stark contrast to the one-drug ICPT, JNJ is one of the most well-diversified companies on earth, with three business divisions: pharmaceuticals, medical devices and consumer products. The company has increased its dividend payout annually for 57 straight years, and JNJ currently yields 2.7%. A low-growth blue-chip portfolio anchor, JNJ is built to withstand recessions with ease, with steady mid-single-digit growth very difficult to stop. That’s stood up in 2020, with patented drugs like Stelara (immunology) and Darzalex (oncology) – each multibillion-dollar growth drivers – growing by 31% and 52%, respectively, in the last quarter.

JNJ YTD return: +3.3%

S&P 500 YTD return: -15.3%

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