11 Best Healthcare Stocks To Invest In

Published on November 11, 2021 at 6:55 am by Vardah Gill in Hedge Funds, News

In this article, we discuss the 11 best healthcare stocks to invest in. You can skip our detailed analysis of the healthcare stocks, and go directly to read the 5 Best Healthcare Stocks To Invest In.

The healthcare sector is growing at a rapid pace mainly because of the aging population and growing demand for life-saving medicines. According to a report published by George Washington University, in the U.S., the older age group will account for approximately 72 million of the population by 2030, exhibiting the need for health professionals. These prospects provide better investment opportunities in healthcare stocks.

In the past 10 years, the Vanguard Health Care Fund delivered an annual average return of 15%, compared with a 13.44% annual average return of S&P 500 during the same period. The onset of Covid-19 has further expanded the investment opportunities in healthcare stocks as several biotech companies took part in the vaccination manufacturing process in the initial months of the pandemic. Moreover, healthcare spending also boomed during the pandemic, as global health spending is expected to grow at a CAGR of 3.9% between 2020 and 2024, as reported by Deloitte.

Over the past few years, the healthcare industry has evolved, shifting the focus to digital health and virtual visits. Covid-19 further fueled this trend as more and more people preferred to get in touch with virtual healthcare assistants instead of going for in-clinic appointments. In early 2020, the virtual visits grew to 28% from just 19% in 2019, as reported by Deloitte.

Our Methodology:

Let’s analyze our list of the best healthcare stocks to invest in. These are some of the most popular healthcare stocks among the 873 hedge funds tracked by Insider Monkey.

Why pay attention to hedge fund holdings? 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 more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the 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.

Best Healthcare Stocks To Invest In

11. Teladoc Health, Inc. (NYSE:TDOC)

Number of Hedge Fund Holders: 43

Recently, Wells Fargo named Teladoc Health, Inc. (NYSE:TDOC) as one of the largest and most scaled companies in the telehealth space. The firm initiated its coverage on the stock with a $156 price target and an Overweight rating on the shares.

At the end of Q2, 43 hedge funds tracked by Insider Monkey reported owning stakes in Teladoc Health, Inc. (NYSE:TDOC), up from 42 in the previous quarter. The total worth of these stakes is over $3.5 billion.

Cathie Wood’s ARK Investment Management was the leading shareholder of Teladoc Health, Inc. (NYSE:TDOC) in Q2, owning shares worth $2.6 billion.

ClearBridge Investments mentioned Teladoc Health, Inc. (NYSE:TDOC) in its Q1 2021 investor letter. Here is what the firm has to say:

“Teladoc is a leading play on telemedicine, a hyper growth market with significant opportunity for increases in utilization accelerated by the COVID19 environment. The company is well-positioned for this evolution in treatment after years of work building out its network of doctors and payors. Its recent merger with Livongo expands the company’s customer base and increases the number of products to cross-sell such as holistic, chronic disease and second opinion services. International expansion is another significant opportunity.”

10. Becton, Dickinson, and Company (NYSE:BDX)

Number of Hedge Fund Holders: 52

Becton, Dickinson, and Company (NYSE:BDX), an American medical technology company, announced its Q3 results on August 5. The company posted an EPS of $2.74, beating the estimates by $0.30. Becton, Dickinson, and Company (NYSE:BDX) is one of the best healthcare stocks to invest in, with revenue of $4.8 billion in Q2, up 26.7% from the prior-year quarter.

This August, Piper Sandler lifted its price target on Becton, Dickinson, and Company (NYSE:BDX) to $285, with an Overweight rating on the shares, as the FDA approved its at-home Covid test kit.

As of Q2, 52 hedge funds tracked by Insider Monkey have stakes in Becton, Dickinson, and Company (NYSE:BDX).

Madison Funds mentioned Becton, Dickinson, and Company (NYSE:BDX) 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.

We believe these negative dynamics will be resolved over time, and meanwhile, base business growth and managerial actions should move per share earnings power higher. First, BD’s management is confident that the Alaris infusion pump has maintained its market share over the last 18 months and many hospitals have even added to their fleet of pumps with BD shipping them under medical necessity provisions. The new 510(k) filing was submitted in April 2021 and is expected to receive approval sometime in the next year, which will fully alleviate the concern. Second, we believe that hospital utilization and diagnostic testing volumes will return towards normal levels as vaccination rates increase and global economies reopen (the U.S. is reportedly currently at 95% and 100% utilization for inpatient and outpatient volumes, respectively). While COVID testing revenues (about 10% of 2021 BD revenue) are expected to decline, management’s choice to accelerate the depreciation of those production assets and to spend a portion of the excess 2021 profits will dampen the earnings cyclicality. Base diagnostic testing revenue will otherwise recover with patient volumes, and combination flu-COVID tests will help maintain some COVID testing revenues into the future. Third, BD’s balance sheet has improved markedly over the past year, and we expect them to reinitiate share repurchases at a meaningful level. This will lead to the first material share count reductions since 2014.

At today’s share price, we deem this to be value-creative capital allocation. Fourth, BD recently announced its intention to spin off its slower-growing diabetes business in 2022; our observations in recent years suggest that separations such as this have been value-creative for health care investors. Fifth, this year’s earnings quality is high by dint of management underutilizing its production assets to lean out inventories and to accelerate its R&D programs, both which positively impact future cash earnings power. Thus, while there is near-term uncertainty regarding the resolution of the issues mentioned, we think they’ll resolve. We believe that management’s actions and the resumption of base demand leave BD positioned to return to a good long-term growth profile.

The stock trades at less than 19x Wall Street’s consensus earnings estimate for 2022, which is approximately 90% of the earnings multiple of the S&P 500 and an even steeper discount to BD’s medical technology peer group. We think the stock is attractively priced and a good value for a leader in the growing medical technology and life science industries.”

Amgen Inc. (NASDAQ:AMGN)

Number of Hedge Fund Holders: 53

Amgen Inc. (NASDAQ:AMGN) presented a positive hedge fund sentiment in Q2, as 53 hedge funds tracked by Insider Monkey reported having stakes in the company, up from 47 in the previous quarter. The total value of these stakes is over $1.65 billion. Amgen Inc. (NASDAQ:AMGN) ranks ninth on our list of the best healthcare stocks to invest in.

Amgen Inc. (NASDAQ:AMGN) pays an annual dividend of $7.04 per share, yielding 3.41%. The company has a track record of 10 years of consistent dividend growth. In Q2, Amgen Inc. (NASDAQ:AMGN) posted an EPS of $4.38, beating the estimates by $0.37. Recently, Piper Sandler lifted its price target on Amgen Inc. (NASDAQ:AMGN) to $255, with an Overweight rating on the shares.

8. Abbott Laboratories (NYSE:ABT)

Number of Hedge Fund Holders: 61

Abbott Laboratories (NYSE:ABT) reported Q3 results on October 20 and posted an EPS of $1.40, beating the estimates by $0.46. The company’s revenue for the quarter stood at $10.9 billion, up 22.8% from the prior-year quarter.

Recently, Atlantic Equities upgraded Abbott Laboratories (NYSE:ABT) to Overweight, with a $144 price target, highlighting the company’s strong business execution in Q3.

At the end of Q2, 61 hedge funds tracked by Insider Monkey reported having stakes in Abbott Laboratories (NYSE:ABT), compared with 65 in the previous quarter. The total value of these stakes is over $4.3 billion.

Polen Capital mentioned Abbott Laboratories (NYSE:ABT) in its Q2 2021 investor letter. Here is what the firm has to say:

“Abbott Laboratories was the lone detractor in the quarter as the company preannounced that revenue and earnings this year would be below their previous guidance. We still expect the company to grow earnings more than 20% this year and continue double-digit earnings growth in the years to come. However, weakness in COVID-19 testing revenue is primarily responsible for the guidance reduction. Abbott is a leader in multiple types of COVID-19 diagnostic tests, and the largely successful vaccine rollout globally is leading to less COVID testing than the company expected. Two years ago, these tests obviously accounted for $0 in revenue but recently accounted for nearly $10 billion in annualized revenues as of the fourth quarter of 2020. We have expected COVID testing revenues to decline sequentially every quarter and eventually level out at less than $1 billion per year. We are not surprised by the current reality, but the decline has been more rapid than what management had expected.

Abbott is a diversified medical products company with likely strong growth to come from its core businesses outside of COVID testing— our investment thesis was not dependent on pandemic related revenue. While the reduction in guidance is atypical for Abbott’s conversative management team, we do not believe it changes our long-term growth assumptions or the investment case in Abbott.”

7. Eli Lilly And Co (NYSE:LLY)

Number of Hedge Fund Holders: 64

Eli Lilly And Co (NYSE:LLY), an American pharmaceutical company, hit a low of $122.40 per share in March 2020 due to the pandemic but has bounced back, gaining 90.5% in the past year. Founded in 1876, Eli Lilly And Co (NYSE:LLY) is one of the best healthcare stocks to invest in.

Eli Lilly And Co (NYSE:LLY) reported its Q3 results on October 26. The company posted revenue of $6.77 billion, up 17.9% from the prior-year quarter. Recently, Berenberg upgraded Eli Lilly And Co (NYSE:LLY) to Buy with a $270 price target, highlighting the company’s long-term sales growth which stands at 10% annually through 2030, compared with a 4% average of its peers.

Fisher Asset Management is the largest shareholder of Eli Lilly And Co (NYSE:LLY), owning shares worth $1.3 billion. As of Q2, 64 hedge funds tracked by Insider Monkey reported having stakes in Eli Lilly And Co (NYSE:LLY), up from 55 in the previous quarter. The total value of these stakes is roughly $3 billion.

Baron Funds mentioned Eli Lilly And Co (NYSE:LLY) 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) ranks sixth on our list of the best healthcare stocks to invest in. In Q2, the company presented a positive hedge fund sentiment, as 67 hedge funds tracked by Insider Monkey reported having stakes in the company, up from 62 in the previous quarter. The total value of these stakes is over $1.35 billion.

The stock has a dividend yield of 2.15%.

ClearBridge Investments mentioned CVS Health Corp (NYSE:CVS) 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.”

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