In this article, we will be taking a look at the 10 best healthcare stocks to buy according to hedge funds.
Resilience and Growth in the U.S. Healthcare Sector
Investing in healthcare equities is typically seen as protective during difficult economic times. This is because, even in times of financial hardship, people usually do not reduce their usage of prescription drugs or other necessary healthcare services. The Centers for Medicare and Medicaid Services (CMS) estimates that national healthcare expenditures would grow at an average rate of 5.6% between 2027 and 2032, with spending on healthcare expected to reach an estimated $4.8 trillion in 2023.
In America, the healthcare sector is booming. A new analysis showed that the Country’s healthcare spending rose by 7.5% in 2023, outpacing the nominal GDP growth rate of that year. A significant portion of the population, approximately 93.1% of Americans, had health insurance last year, which helped to drive up healthcare spending. The US government’s predicted 5.6% annual growth in healthcare spending between 2023 and 2032 is expected to surpass the 4.3% growth rate of the GDP.
Navigating Challenges and Opportunities in the Global Healthcare Market
The global healthcare industry is expanding, with McKinsey predicting profits to grow from $583 billion in 2022 to over $800 billion by 2027, at a 7% CAGR. Despite challenges in 2023 from labor shortages and inflation, 2024 is expected to recover, creating an attractive investment opportunity. AI investments in healthcare have surged, with $2.8 billion already invested in 2024 and expectations of over $11 billion by year-end. Deloitte’s 2024 outlook highlights high investor confidence, with AI poised to save $360 billion in U.S. healthcare over the next five years through advancements in patient care, diagnosis, and administration.
In 2023, the healthcare sector faced challenges as investors adjusted for higher interest rates, causing it to lag behind other sectors. However, GLP-1 drugs for weight loss significantly boosted some health companies’ income statements. The sector saw mixed performance, with some companies struggling due to tough comparisons after the COVID-19 vaccine and therapeutic revenues exceeded $100 billion in 2022. Rising interest rates also pressured biotechnology, and providers faced lingering COVID-19 impacts, although distributors improved with better fundamentals and opioid litigation resolutions. However, as fed’s easing of rate policy, with the last cut being that of 50 basis points, the healthcare market is expected to boost.
A healthcare professional wearing a lab coat, holding a vial of medication.
Our Methodology
For our methodology, we have ranked the best healthcare stocks to buy according to hedge funds based on their total number of hedge fund holders as of Q2 2024.
“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. Abbott Laboratories (NYSE:ABT)
Number of Hedge Fund Holders: 69
Abbott Laboratories (NYSE:ABT) is a global healthcare company that develops, manufactures, and sells a diverse range of medical devices, diagnostic equipment, nutritional products, and branded generic pharmaceuticals. In simple terms, Abbott creates products that help people manage their health at various stages of life.
A major catalyst for Abbott Laboratories (NYSE:ABT) is its innovative medical device portfolio, particularly in diabetes care and cardiovascular health. The company’s FreeStyle Libre continuous glucose monitoring system has been a game-changer in diabetes management. This device allows patients to monitor their glucose levels without painful finger pricks, leading to better disease management and improved quality of life.
Abbott Laboratories (NYSE:ABT)’s Q2 2024 total sales reached $10.4 billion, a 4.0% increase from Q2 2023. Organic sales growth, excluding COVID-19 testing-related sales, was 9.3%. Key drivers included strong performance in Medical Devices, with FreeStyle Libre global sales growing 23.3% to $1.5 billion, and double-digit growth in Established Pharmaceuticals (13.7%) and Nutrition (7.7%). In Q2 2024, Abbott made notable advancements in its product portfolio with several key approvals: the FDA approved the Esprit™ below-the-knee system for peripheral artery disease, and two new over-the-counter continuous glucose monitoring systems, Lingo™ and Libre Rio™, were also cleared by the FDA. Additionally, the AVEIR® dual chamber leadless pacemaker system received CE Mark certification.
As of Q2 2024, around 69 hedge fund holders held stake in the stock with Fisher Asset Management being the largest stakeholder among the ones we tracked, holding 10,516,289 shares worth $1,092,747,717. The stock also holds a Strong Buy rating from 15 Wall Street analysts. Over the past three months, these analysts have set a 12-month price target for Abbott Laboratories with an average of $127.36, ranging from a low of $107.00 to a high of $143.00. This target suggests an 11.57% increase from the current price of $114.15.
9. Amgen Inc. (NASDAQ:AMGN)
Number of Hedge Fund Holders: 69
Amgen Inc. (NASDAQ:AMGN) is a biotechnology powerhouse that specializes in developing and manufacturing innovative human therapeutics. At its core, Amgen focuses on creating biological medicines, which are complex proteins derived from living cells, to treat serious illnesses.
One of the primary catalysts for Amgen Inc. (NASDAQ:AMGN)’s growth is its pipeline of innovative medicines and the successful commercialization of existing products. In the first quarter of 2024, Amgen reported a 22% increase in total revenues to $7.4 billion compared to the same period in 2023. This growth was driven by a 25% increase in product sales volume, with ten products achieving double-digit volume growth, including Repatha, TEZSPIRE, and EVENITY. Additionally, the acquisition of Horizon Therapeutics contributed significantly to sales, adding $914 million from first-in-class medicines like TEPEZZA and KRYSTEXXA.
Amgen Inc. (NASDAQ:AMGN)’s revenue growth was strong, but profitability metrics were mixed: non-GAAP earnings per share (EPS) fell 1% to $3.96, while non-GAAP operating income was $3.1 billion. The dip in EPS was due to higher operating and interest expenses from the Horizon Therapeutics acquisition. Additionally, Amgen is entering the obesity treatment market, reporting positive interim results for its candidate MariTide (AMG 133), with topline data expected in late 2024.
As of Q2 2024, around 69 hedge fund holders held stakes in the stock with Citadel Investment Group being the largest stakeholder among the ones we tracked, with 1,432,100 shares worth $447,459,645. The stock holds a Moderate Buy rating based on 17 Wall Street analysts. In the last three months, 17 Wall Street analysts set a 12-month price target for Amgen at an average of $339.31, with a high of $381.00 and a low of $215.00, indicating a 1.00% change from the current price of $335.95.
8. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ), founded in 1886, is a multinational corporation known for its extensive range of healthcare products. The company operates through three main segments: pharmaceuticals, medical devices, and consumer health products. It produces a wide array of well-known brands such as Band-Aid, Tylenol, and Listerine, and its products are sold to hospitals, healthcare professionals, and consumers worldwide.
Johnson & Johnson (NYSE:JNJ)’s commitment to innovation and health equity is a significant catalyst for growth. The company’s initiatives like the Health Equity Innovation Challenge aim to address racial health gaps and improve access to healthcare, which positions J&J as a leader in social responsibility while opening new markets. Additionally, J&J’s support for the National Academy of Medicine’s Catalyst Award Competition reflects its dedication to fostering innovative ideas that could enhance the human health span which drives long-term growth in emerging healthcare sectors.
In Q2 2024, Johnson & Johnson (NYSE:JNJ) reported sales of $22.4 billion, a 4.3% increase. The company achieved regulatory successes and expanded its biotechnology footprint by acquiring Shockwave Medical, enhancing its position in cardiovascular intervention. The MedTech segment generated $8 billion in sales, up 4.4% year-over-year. Analysts view J&J as a promising investment, projecting over 20 novel therapies and 50 product expansions by 2030, with expected segment growth of 5% to 7% CAGR. The 12-month price target is $170, indicating a 2% upside. J&J was held by 80 hedge funds at the end of Q2 2024, with Fisher Asset Management as the largest shareholder from the funds we tracked with shares worth $1.02 billion.
7. Boston Scientific Corporation (NYSE:BSX)
Number of Hedge Fund Holders: 82
Boston Scientific Corporation (NYSE:BSX) is one of the best healthcare stocks. The company creates products that address various medical needs across multiple specialties, including cardiovascular, rhythm management, and neuromodulation.
Boston Scientific Corporation (NYSE:BSX) launched its Farapulse FPA product in January, which contributed to a 17% revenue growth in Q2. Global regulatory approval for Farapulse could further boost the company, whose shares have risen 44% year to date. The market’s optimism is reflected in its valuation, with Boston Scientific trading at a forward P/E of 30.49, nearly double that of its nearest peer, Medtronic, at 16.50.
Aristotle Atlantic Core Equity Strategy highlighted Boston Scientific Corporation (NYSE:BSX) in its Q2 2024 investor letter. The fund noted the company’s strong performance and growth potential in the medical device sector. Here is what the fund said:
“Boston Scientific is a global developer, manufacturer, and marketer of medical devices that are used in a broad range of interventional medical specialties. The company develops cardiovascular and cardiac rhythm management products, including imaging catheters, imaging systems, and guidewires. It also makes devices used for electrophysiology, endoscopy, pain management (neuromodulation), urology, and pelvic health, including laser systems, hydrogel systems, and brain stimulation systems. Boston Scientific markets its products in about 130 countries; the U.S. generates about 60% of its revenue.
We believe Boston Scientific, as a leader in medical devices, is benefiting from the strong utilization trends coming out of COVID-19, positive demographic trends with aging patients, and new product innovation to gain market share. The company has executed well against the long-range plan issued last fall, which calls for organic sales growth in the range of 8%-10%, 150 basis points of operating margin expansion, and category leadership over the period 2024 through 2026. Additionally, we see a consistent track record of accelerating organic sales growth and a track record of accretive M&A.”
As of Q2 2024, around 82 hedge fund holders held stakes in the stock with Citadel Investment Group being the largest stakeholder, among the ones we tracked, with 12,499,867 shares worth $962,614,757. The stock also holds a Strong Buy rating based on 19 Wall Street analysts.
6. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 83
Danaher Corporation (NYSE:DHR) is a global science and technology innovator focused on life sciences and diagnostics. At its core, Danaher designs, manufactures, and markets medical, industrial, and commercial products and services.
Danaher Corporation (NYSE:DHR) reported $5.74 billion in sales for the second quarter of 2024, above analysts’ projections of $5.59 billion despite a 3% year-over-year fall. Revenue fell 3.5% on an organic basis, but the company’s bioprocessing segment showed signs of life, with orders rising steadily. Danaher’s Cepheid division was a major driver, exceeding revenue projections by $100 million and demonstrating the strength of its core businesses.
In Q2 2024, around 83 hedge fund holders held stakes in the company with Fisher Asset Management being the largest stakeholder with 4,436,341 shares worth $1,108,420,324, according to our database of hedge funds. Danaher Corporation (NYSE:DHR) received a moderate buy rating from 14 Wall Street analysts. The average price target is $280.93, with a high of $310.00 and a low of $250.00, representing a 5.59% increase from the last price of $266.06.
5. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 84
Pfizer Inc. (NYSE:PFE) is a global pharmaceutical giant that develops, manufactures, and sells prescription medications, vaccines, and consumer healthcare products. The company’s primary business is creating and distributing drugs to treat various medical conditions, from common ailments to rare diseases.
Pfizer Inc. (NYSE:PFE)’s position in the market for cancer treatments has been greatly strengthened by its recent $43 billion acquisition of Seagen, a biotechnology company that specializes in antibody-drug conjugates (ADCs). It is anticipated that by 2030, this action will improve Pfizer’s oncology portfolio and generate over $10 billion in risk-adjusted revenues.
Pfizer Inc. (NYSE:PFE) reported Q2 2024 revenues of $13.3 billion, reflecting a 3% year-over-year operational growth, its first increase since Q4 2022. Key growth drivers included a 14% revenue increase in its non-COVID portfolio, strong performance in its Oncology division post-Seagen acquisition, and contributions from new product launches. The adjusted earnings per share (EPS) were $0.60, down from the previous year but above analyst estimates, impacted by $1.3 billion in one-time costs. Pfizer faced fluctuations in performance, with 2022 revenues peaking due to COVID-19 sales, followed by a 41% decline in 2023 as demand normalized. However, it achieved 7% operational growth when excluding COVID-19 products and received nine FDA approvals in 2023, which are expected to drive future growth. The company’s ongoing cost optimization efforts aim to save $5.5 billion by 2027.
As of Q2 2024, 84 hedge fund holders we tracked held stakes in the stock with Citadel Investment Group being among the largest stakeholders with 29,590,600 shares worth $827,944,988. Based on the analysis of 18 Wall Street analysts, the stock holds a Moderate Buy rating. Wall Street analysts predict Pfizer’s average 12-month price target at $32.77, with a high of $45.00 and a low of $27.00. This represents an 11.39% increase from the current price of $29.42.
4. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 96
Merck & Co., (NYSE:MRK) often simply referred to as Merck, is a global pharmaceutical giant that develops, manufactures, and sells prescription medicines, vaccines, and animal health products. At its core, Merck is in the business of improving human and animal health through scientific innovation.
A major catalyst for Merck & Co., (NYSE:MRK) is its cancer drug Keytruda. This immunotherapy treatment continues to show strong growth and expand into new indications. In Q1 2024, Keytruda sales grew 20% year-over-year to $6.9 billion, demonstrating its ongoing potential. The recent FDA approval of WINREVAIR for pulmonary arterial hypertension also represents a new growth driver in the cardiometabolic space.
Merck & Co., (NYSE:MRK)’s new pneumococcal vaccine for adults received FDA approval, marking a key breakthrough. The company also acquired EyeBio to develop retinal treatments and expanded its Animal Health segment by acquiring Elanco’s aqua business. In Q2 2024, Merck’s Human Health grew 11%, Animal Health rose 6%, and its cancer drug saw a 21% sales boost, reaching $7.3 billion. Additionally, its new pulmonary arterial hypertension vaccine, launched in March, reported $70 million in sales.
As of Q2 2024, around 96 hedge fund holders held stakes in the stock from among those we tracked, with Fisher Asset Management being the largest stakeholder from these with position worth $1.77 billion. Analysts have an optimistic 12-month price projection of $140, which represents a 21% increase from the current prices for MRK.
Regarding Merck & Co., Inc. (NYSE:MRK), Baron Funds’ Baron Health Care Fund made the following statement in its investor letter for the first quarter of 2024, explaining why they think the company outperformed in Q1:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed to the continued growth of Keytruda, the company’s key asset and the leading immuno-oncology agent used to treat a variety of cancers. The FDA’s late March approval of pulmonary arterial hypertension drug sotatercept also drove share gains. We retain conviction as Merck has started to transition from prioritizing its Keytruda franchise to building a more diversified business, with a focus on the Gardasil vaccine, pneumococcal vaccine development, and cardiovascular drug development, well in advance of the scheduled expiration of patent protection/exclusivity rights.”
3. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 100
Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical giant that develops, manufactures, and sells a wide range of medications. At its core, Lilly creates and distributes drugs to treat various medical conditions, with a particular focus on diabetes, oncology, immunology, and neuroscience.
Zepbound and Mounjaro, two medications from Eli Lilly and Company (NYSE:LLY), have been approved to treat obesity and type 2 diabetes, respectively, and are anticipated to bolster the company’s present revenue base. Tirzepatide is the same active ingredient in both therapies. Zepbound brought in $1.2 billion and Mounjaro about $3.1 billion respectively in the second quarter, establishing them as the two best-selling medications. By 2029, analysts project a $50 billion increase in medicine sales.
As of Q2 2024, a 100 hedge fund holders from those we tracked held stakes in the stock with Fisher Asset Management being the largest stakeholder from these, owning nearly 5 million shares. Analysts are also bullish on LLY giving it a Strong Buy rating. Over the last 3 months, 20 Wall Street analysts set an average 12-month price target of $1,042.88 for Eli Lilly, with a high of $1,150.00 and a low of $856.00, reflecting a 13.17% increase from the current price of $921.49.
The following is what Baron Health Care Fund stated regarding Eli Lilly and Company (NYSE:LLY) in its investor letter for the second quarter of 2024.
“ Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next-generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become the standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
2. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 108
Thermo Fisher Scientific (NYSE:TMO) stands second among the best healthcare stocks to buy according to hedge funds. The American biotech company has seen a 14% stock rise in 2024 which was driven by its acquisition strategy. Its recent acquisition of Olink strengthens its leadership in protein research which accelerates discoveries and advances precision medicine.
Thermo Fisher Scientific Inc. (NYSE:TMO) reported $10.5 billion in revenue for the second quarter of 2024, a 1.3% decrease from the same period the previous year. Nonetheless, the sales came in at $23.4 million over experts’ projections. Analysts view the corporation as a leader because of its unwavering commitment to research.
Thermo Fisher Scientific’s balance sheet remains strong, with Q2 2024 operating cash flow rising to $1.96 billion from $1.54 billion last year. Free cash flow grew to $1.7 billion from $1.26 billion.
As of Q2 2024, 108 hedge fund holders from among those we tracked held stakes in the stock with Fisher Asset Management being the largest stakeholder from these with 2,570,972 shares worth $1,421,748,082. The stock holds a Strong Buy rating based on 16 Wall Street analysts. Over the past 3 months, 16 Wall Street analysts set an average 12-month price target of $646.81 for Thermo Fisher, with a high of $700.00 and a low of $600.00. This reflects a 5.40% increase from the current price of $613.69.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
UnitedHealth Group (NYSE:UNH), a Minnesota-based company, is a diversified healthcare company that operates through two main segments: UnitedHealthcare and Optum. At its core, UnitedHealth Group provides health insurance coverage and healthcare services to millions of individuals and businesses across the United States.
Since 2011, UnitedHealth’s revenue has more than tripled, growing from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, the company reported $98.8 billion in revenue, a 6.41% increase from the same quarter the previous year. Additionally, its operating cash flow reached $6.7 billion,
United Health Group has drawn investors through its expansion into sectors like home healthcare and analytics, diversifying its operations to offer more value to partners and patients. Andvari Associates emphasized these strengths in its Q2 2024 investor letter and said:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest providers and distributors of services in the $5 trillion U.S. healthcare market. The company provides services to employers, individuals, and those eligible for Medicare and Medicaid. United’s Optum segment provides pharmacy benefit services and a slate of other insights and services to the major players in the healthcare space: physicians, hospitals, government agencies, and life science companies.
This is a company that provides essential services and has a strong wind at its back. Over two million people enroll in Medicare and Medicare Advantage every year. With the increase in healthcare spending every year, the value of the services and insights provided by Optum will only increase. United is a solid business with high teen returns on its capital. After reinvesting in its businesses, United will likely return $16 billion in 2024 in the form of dividends and share repurchases off a revenue base of ~$380 billion.”
As of Q2 2024, around 114 hedge fund holders held stakes in the stock with Fisher Asset Management being the largest stakeholder with shares worth $1,573,649,573. Analysts are also bullish on UNH giving it a Strong Buy rating. 16 Wall Street analysts have set a 12-month price target for UnitedHealth, with an average target of $571.47. The forecasts range from a high of $635.00 to a low of $481.00. This average target indicates a -0.61% change from the current price of $575.00.
“Overall, UNH ranks first among the best healthcare stocks to buy according to hedge funds. While we acknowledge the potential of healthcare companies, 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.”
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