In this article, we are going to discuss the 10 best healthcare stocks to buy according to hedge funds. You can also check out the 20 Most Valuable Healthcare Companies in the World here.
Healthcare stocks are often considered a defensive investment during times of economic uncertainty. This is because people typically do not cut back on essential healthcare services or prescription drug purchases, even during economic downturns. According to the Centers for Medicare and Medicaid Services (CMS), expenditure on healthcare within the United States reached an estimated $4.8 trillion in 2023 while projections for 2027-32 suggest that national care spending will grow at an average rate of 5.6%.
A report by McKinsey also predicts that the healthcare industry is expected to see significant profit growth, with the overall profit pool reaching $819 billion by 2027, up from $583 billion in 2022. As we progress through 2024, there is a growing sense of optimism surrounding the healthcare sector. BlackRock’s 2024 outlook for healthcare suggests that investors can anticipate a “favorable risk-reward environment” in the sector this year. The healthcare sector’s underperformance in the previous year has created an appealing entry point for investors seeking to invest in the sector in 2024. There are several key trends behind this favorable climate in 2024 and beyond.
Firstly, the healthcare market is undergoing a patient-centered revolution fueled by technology. Telehealth or telemedicine, a solution driven by the pandemic, is now entering the mainstream due to its convenience and accessibility. The global telemedicine market, valued at $60.15 billion in 2023, is expected to keep growing at a steady pace for the next few years. This trend aligns with a broader shift towards personalized care. Advancements in genomics are paving the way for precision medicine, which is expected to be a $50.2 billion market by 2028. Precision medicine personalizes treatments based on the patient’s genetic makeup, leading to potentially more effective interventions.
The AI revolution is also impacting the healthcare sector. According to a report by Deloitte, in 2019 and 2022, investor confidence in AI for healthcare was high, with around $31.5 billion poured into equity funding. In the US alone, wider adoption could generate annual savings of up to $360 billion, roughly 10% of the country’s healthcare spending, within the next five years.
Another key trend is the rise of remote patient monitoring (RPM). This technology allows healthcare providers to collect patients’ health data remotely and intervene early if there are any concerning changes. The global RPM market, valued at $71.9 billion in 2023, is expected to observe further growth. Wearable devices and other technologies enabling RPM are likely to see continued adoption through 2028.
A healthcare professional preparing a vial for a patient in need of biotechnology services.
Our Methodology
To shortlist the 10 best healthcare stocks to buy according to hedge funds, we conducted an analysis of our database of 919 hedge funds as of Q1 2024. From this dataset, we selected the best healthcare stocks based on the hedge fund sentiment. The top healthcare stocks have been ranked in ascending order of the number of hedge funds holding a stake in them as of the first quarter of the year. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Healthcare Stocks to Buy According to Hedge Funds
10. Boston Scientific Corporation (NYSE:BSX)
Number of Hedge Fund Holders: 72
Boston Scientific Corporation (NYSE:BSX) is a medical device company focusing on developing minimally invasive solutions.
Boston Scientific Corporation (NYSE:BSX) experienced significant financial growth in Q1 2024. Sales increased by $467 million, reaching $3.86 billion, and net income rose year over year by 57.3%. This translated into a net profit margin of 12.81%, reflecting an over 38% year-on-year increase.
Furthermore, the company reported an earnings per share of $0.56 in Q1, surpassing the expectations of $0.51. Boston Scientific Corporation (NYSE:BSX) has managed to beat the EPS estimates consistently in the last 4 quarters.
With this performance, analysts are bullish on Boston Scientific Corporation (NYSE:BSX), with an average 12-month price target of $82.45. This price target reflects an upside potential of over 8%. This bullish sentiment is further endorsed by a recent “Buy” recommendation from Goldman Sachs.
Here’s what Baron Funds said about Boston Scientific Corporation (NYSE:BSX) in its Q1 2024 investor letter:
“Strength in the sub-industry also came from robotic surgical system leader Intuitive Surgical, Inc. and global medical device manufacturer Boston Scientific Corporation (NYSE:BSX). We remain positive about Boston Scientific because of the company’s differentiated products in electrophysiology and structural heart, double-digit EPS growth profile, proven track record of cost discipline, and consistent annual operating margin expansion.”
9. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 77
Pfizer Inc. (NYSE:PFE) is a biopharmaceutical giant that develops, manufactures, and sells a wide range of drugs and vaccines globally. Some of its well-known brands include Eliquis for cardiovascular health, Prevnar for childhood vaccinations, and Comirnaty, the mRNA COVID-19 vaccine.
Pfizer Inc.’s (NYSE:PFE) Q1 2024 revenue grew by 11% operationally, excluding COVID-19 treatments. The increase in revenue was driven by strong performances from the newly acquired Seagen and established drugs such as Vyndaqel and Eliquis. The net profit margin was recorded at 20.9%, reflecting an improvement from the previous quarter.
Furthermore, Pfizer Inc. (NYSE:PFE) reported an EPS of $0.82, beating the expectations by over 50%. This marks the fourth consecutive quarter where the company has surpassed EPS estimates.
Given the company’s global reputation, strategic acquisitions, and strong financials, analysts have positive sentiments toward Pfizer Inc. (NYSE:PFE)’s future. The stock has an average 12-month price target of $33.5 and a consensus rating of “Moderate Buy.”
Here’s what Diamond Hill Capital said about Pfizer Inc. (NYSE:PFE) in its Q1 2024 investor letter:
“Though valuations have increased, we continue identifying high-quality companies we believe the market is overlooking. Thus, we initiated new positions in Q1: Pfizer Inc. (NYSE:PFE). Biopharmaceutical company Pfizer is a leading global pharmaceuticals company that benefited during the pandemic from COVID vaccine and treatment sales, which provided significant excess earnings above the company’s normalized earnings power. Although the resulting influx of incremental cash allowed Pfizer to complete several acquisitions, the company has struggled to return to its pre-pandemic profitability as COVID-related sales have declined. In late 2023, Pfizer started focusing on cost-cutting and aiming to increase its operating margin significantly over the next few years. The base (non-COVID-related) business continues performing well, and given the outlook from here, we took advantage of what we consider an attractive, depressed valuation to initiate a position during the quarter.”
At the end of Q1 2024, 77 hedge funds reported owning a stake in Pfizer Inc. (NYSE:PFE).
8. Intuitive Surgical Inc. (NASDAQ:ISRG)
Number of Hedge Fund Holders: 79
Intuitive Surgical Inc. (NASDAQ:ISRG), a Sunnyvale, California-based company, specializes in the development, manufacturing, and marketing of robotic products to improve clinical outcomes for patients undergoing minimally invasive surgery.
Intuitive Surgical Inc. (NASDAQ:ISRG) recorded an 11% year-on-year increase in revenue in Q1 2024 to $1.89 billion. This growth stemmed from a rise in da Vinci procedures and the number of installed systems. Net income rose to $545 million compared to $355 million in Q1 2023. This translated into a net profit margin of 28.8%, up 37% from the previous year.
Analysts are optimistic about Intuitive Surgical Inc. (NASDAQ:ISRG) with a “Moderate Buy” rating. The average 12-month price target sits at $403.7, suggesting a potential upside. Price estimates range from $314 to $500 per share. Intuitive Surgical Inc. (NASDAQ:ISRG) ranks eighth on our list of the best healthcare stocks to buy according to hedge funds.
Here’s what Baron Funds said about Intuitive Surgical Inc. (NASDAQ:ISRG) in its Q1 2024 investor letter:
“Intuitive Surgical, Inc. (NASDAQ:ISRG) sells the da Vinci surgical robotic system for minimally invasive surgical procedures. The stock rose after the company announced the planned launch of the da Vinci 5, its next-generation, multiport robotic system. The new system has 10,000 times the computing power of its predecessor and features over 150 design upgrades such as force feedback, improved visualization, and productivity enhancements. Intuitive plans to launch the device at a small number of customers in the U.S. before releasing it more broadly. We think the da Vinci 5 will enable Intuitive to continue to generate strong revenue and earnings growth and maintain its competitive edge.”
7. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) is a global healthcare giant that develops, manufactures, and sells a wide range of medical products. Through its Innovative Medicine segment, the company offers prescription drugs across various therapeutic areas.
In Q1 2024, Johnson & Johnson (NYSE: JNJ) reported positive growth, achieving sales of $21.4 billion, marking a 2.3% increase year-over-year. The company also saw net earnings rise significantly to $5.3 billion, compared to a loss in the corresponding period of 2023. Meanwhile, the EPS was recorded at $2.71, higher than the estimate of $2.65. The company has surpassed EPS estimates in the last 4 quarters.
Due to its strong operational performance, Johnson & Johnson (NYSE:JNJ) has a positive analyst outlook with a “Moderate Buy” rating and an average 12-month price target of $175.8, suggesting a potential upside of over 19%.
At the end of Q1 2024, 80 hedge funds reported owning a stake in Johnson & Johnson (NYSE:JNJ). Fisher Asset Management was the leading hedge fund investor in the company, with a stake worth over $1 billion.
6. Vertex Pharmaceutical Incorporated. (NASDAQ:VRTX)
Number of Hedge Fund Holders: 85
Vertex Pharmaceuticals Incorporated. (NASDAQ:VRTX) focuses on developing and selling treatments for Cystic Fibrosis (CF).
In Q1 2024, Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) reported a 13% year-on-year increase in product revenues, reaching $2.69 billion. This was driven by strong demand for its cystic fibrosis drug TRIKAFTA, especially outside the US. The company maintains a strong cash position of $14.6 billion and has reiterated its full-year 2024 revenue guidance of $10.55 to $10.75 billion.
As a leader in the cystic fibrosis market with strong financial performance and a diverse pipeline including sickle cell therapies, it is unsurprising that analysts are bullish on Vertex Pharmaceuticals Incorporated. (NASDAQ:VRTX). The company holds a “Moderate Buy” consensus rating, based on ratings from 25 Wall Street analysts over the past year. Of these, 16 analysts have issued “Buy” ratings.
Here’s what Aristotle Atlantic Partners, LLC, said about Vertex Pharmaceuticals Incorporated. (NASDAQ:VRTX) in its Q4 2023 investor letter:
“Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) develops drugs for treating cystic fibrosis, cancer, inflammatory bowel, autoimmune disease and neurological disorders. The biotechnology company has four commercial drugs used to treat cystic fibrosis. Vertex has other drugs in development, including additional cystic fibrosis treatments and medications addressing sickle cell disease, beta thalassemia, alpha-1 antitrypsin deficiency and pain.
Vertex is the global leader in treating cystic fibrosis and has additionally built a robust pipeline in several therapeutic areas. Late-stage studies in acute and neuropathic pain are expected to be another catalyst for the company. We believe Vertex’s valuation is attractive and at a discount relative to their 5-year historical average. Additionally, the company is well capitalized, with roughly $12.5 billion in net cash on its balance sheet.”
5. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 95
Merck & Co., Inc. (NYSE:MRK) is a major player in the healthcare industry, offering a range of solutions for humans and animals including vaccines, medications, and biological therapies. Founded in 1891, Merck & Co. (NYSE:MRK) has been a leader in the healthcare industry for over a century, with its headquarters located in Rahway, New Jersey.
Merck & Co., Inc.’s (NYSE:MRK) Q1 2024 sales grew 9% year-over-year to $15.8 billion, driven by strong performances in oncology drugs and vaccines. The company also raised its full-year sales forecast to $63.1 – $64.3 billion.
Given its strong financial performance and portfolio expansion through business development and acquisitions such as Harpoon, it is no surprise that the Merck & Co., Inc. (NYSE:MRK) stock has attracted bullish sentiments from analysts. The stock has earned a consensus “Strong Buy” rating. Analysts predict an average price target of $145.08 within the next 12 months, with estimates ranging from $132 to $168. The average price target represents a potential upside of over 11%.
Here’s what Carillon Tower Advisers said about Merck & Co., Inc. (NYSE:MRK) in its Q1 2024 investor letter:
“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”
As of Q1 2024, 95 hedge funds reported owning a stake in Merck & Co., Inc. (NYSE:MRK), making it one of the best healthcare stocks to buy according to hedge funds.
4. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 98
Danaher Corporation (NYSE:DHR) designs and sells a wide range of products and services for various sectors including medical, industrial, commercial, and biotechnology.
In Q1 2024, Danaher Corporation (NYSE:DHR) reported an EPS of $1.92, surpassing estimates of $1.71. Meanwhile, the revenue of $5.8 billion also exceeded expectations of $5.62 billion. The company has managed to beat EPS estimates in the last 4 quarters.
Analysts are bullish on Danaher Corporation (NYSE:DHR) due to favorable consumer trends, Q1 results exceeding expectations, and the company’s reputation as a sector leader in mergers and acquisitions. Danaher Corporation (NYSE:DHR) has received a consensus rating of “Moderate Buy.”
Meanwhile, the 12-month price target for Danaher Corporation (NYSE:DHR) averages $276.64, representing an 8.81% upside from its last price. The price targets range from a high of $297 to a low of $235. The company ranks fourth on our list of the best healthcare stocks to buy now.
Here’s what RGA Investment Advisors said about Danaher Corporation (NYSE:DHR) in its Q1 2024 investor letter:
“In our Q3 2023 commentary, we featured a section on our investment in Danaher Corporation (NYSE:DHR) entitled “Purity in the Crown Jewel of Bioprocessing.” Specifically, we were speaking to Cytiva, Danaher’s bioprocessing business formed by the merger of Pall Corp and GE’s bioprocessing division. We will not repeat the features that attract us to bioprocessing in general, nor the elements of timeliness, though we will emphasize that our confidence in timeliness has actually increased since writing that piece. While Danaher has performed admirably ever since, its peer Sartorius, which was referenced by labeling bioprocessing “an oligopolistic market, with a small number of critical players and extremely high barriers to entry.”
3. United Health Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 104
UnitedHealth Group Incorporated (NYSE:UNH), a diversified healthcare company founded in 1974, offers a wide range of health insurance plans, health services, and pharmacy care programs through its various segments.
The company’s Q1 2024 results showed a decent increase in revenue, rising nearly $8 billion year-over-year to $99.8 billion. Meanwhile, earnings per share of $6.91, exceeded the expectations of $6.62. UnitedHealth Group Incorporated (NYSE:UNH) also provided over $6 billion in aid to care providers.
The UnitedHealth Group Incorporated’s (NYSE:UNH) strong cash flow supports potential acquisitions, and its focus on customer growth and AI positions it well for future success. This bullish sentiment is reflected in the “Strong Buy” analyst rating of the stock and a price target suggesting a potential 17.6% upside.
Here’s what Baron Funds said about UnitedHealth Group Incorporated (NYSE:UNH) in its Q1 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH) is a leading health insurance company that operates across four segments: United Healthcare, Optum Health, OptumInsight, and OptumRX. Shares fell alongside other managed care organizations (MCOs) due to patient utilization of Medicare Advantage (MA) that was higher than consensus forecasts, raising concerns that MCOs had mispriced 2024 bids and could suffer margin compression as a result. In addition, the industry is facing headwinds from MA reimbursement cuts and Star Rating changes. While management said higher cost trends are mostly transitory and reflected in its bidding, and 2024 guidance was roughly in line with consensus, investors took a more cautious wait-and-see approach. We believe UnitedHealth should remain a core portfolio holding, as it is a way to play positive demographic, population health, and value-based reimbursement trends. Despite its size, we think the company should be able to grow earnings consistent with its 13% to 16% long-term EPS annual target, the fastest among major MCOs.”
2. Eli Lilly & Company (NYSE:LLY)
Number of Hedge Fund Holders: 109
As a major pharmaceutical player, Eli Lilly & Company (NYSE:LLY), develops medications for diabetes, cancer, and other conditions such as migraines and arthritis. Operating since 1876, the company is headquartered in Indianapolis, Indiana.
Eli Lilly & Company (NYSE:LLY)’s Q1 2024 performance was strong, with revenue rising 26% year-on-year thanks to a few key drugs. The company also made significant pipeline progress with positive trial results and new drug submissions. Furthermore, Eli Lilly & Company’s (NYSE:LLY) raised its full-year revenue and EPS guidance by $2.0 billion and $1.25, respectively.
Eli Lilly & Company (NYSE:LLY) is a hot healthcare stock due to its dominance in weight-loss drugs (GLP-1). This booming market justifies its high valuation, and analysts are bullish on the stock, giving it a “Strong Buy” rating.
Here’s what Baron Funds said about Eli Lilly & Company (NYSE:LLY) in its Q1 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company that discovers, develops, manufactures, and sells medicines in the categories of diabetes, oncology, neuroscience, and immunology, among other areas. Stock performance was strong due to robust fourth quarter sales of Mounjaro/ Zepbound, better-than-anticipated initial guidance for fiscal year 2024, and ongoing enthusiasm surrounding the company’s obesity and diabetes franchises. We continue to think Lilly is well positioned to grow revenue and earnings at attractive rates through the end of the decade and beyond.”
Of the 919 hedge funds being tracked by Insider Monkey as of Q1 2024, 109 funds reported owning a stake in Eli Lilly & Company (NYSE:LLY). The company ranks second on our list of the best healthcare stocks to buy now.
1. Thermo-Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 110
Thermo Fisher Scientific Inc. (NYSE:TMO) is a major supplier of lab equipment, diagnostics, and biopharma services across various industries like research, healthcare, and pharmaceuticals. Its offerings include instruments, consumables, and services used in drug discovery, disease diagnosis, and clinical research.
The company’s Q1 2024 results showed that revenue reached $10.34 billion, while adjusted EPS rose 2% to $5.11. The company has revised its revenue expectations to between $42.3 billion and $43.3 billion, up from the previous range of $42.1 billion to $43.3 billion. Similarly, adjusted EPS guidance has been increased to a range of $21.14 to $22.02, compared to the prior expectation of $20.95 to $22, reflecting strong operational performance this year.
With higher-than-expected EPS in Q1 2024 and increased revenue and EPS guidance, the company has attracted a consensus rating of “Strong Buy” and an average price target of $630.67, indicating an 11.94% upside potential.
Here’s what Generation Investment Management said about Thermo Fisher Scientific Inc. (NYSE:TMO) in its Q4 2023 investor letter:
“In each quarterly letter we share examples from the portfolio that bring our investment process to life. This quarter we focus on Thermo Fisher Scientific Inc. (NYSE:TMO), a provider of healthcare products.
In recent years advances have accelerated. The large-scale use of mRNA vaccines during the COVID pandemic – the first major application of these vaccines – is just one example. Similar advances in drug development have allowed medicines to be developed for hard-to-treat diseases like Alzheimer’s, as well as to treat and perhaps cure diseases that previously eluded treatment.
To push innovation forward, researchers need tools to ask the right questions, run experiments to test hypotheses and in turn draw insights. These tools encompass high-specification instruments, high-purity reagents, powerful software and a variety of specialised services. An ecosystem has developed of companies that specialise in providing these tools. We often think of them as providing the ‘picks-and-shovels’ to researchers who are mining for the gold once obscured by nature…” (Click here to read the full text)
While we acknowledge the potential of Thermo Fisher Scientific Inc. (NYSE:TMO) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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