In this article, we will take a look at the 5 best healthcare stocks to buy now. For more stocks, head on over to 15 Best Healthcare Stocks To Buy Now.
5. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 75
On May 19, AbbVie Inc. (NYSE:ABBV) announced that the US Food and Drug Administration (FDA) had approved its blood cancer therapy for adult patients. The therapy is targeted toward the treatment of advanced large B-cell lymphoma, a type of cancer in the white blood cells. According to FDA estimates, the disease impacts the lives of 150,000 patients around the world annually. The therapy will be available to the patients under the brand name Epkinly. The per-month price is currently listed at $37,500, and the average therapy duration is nine months. AbbVie Inc. (NYSE:ABBV) offers an annual forward dividend yield of 4.08% as of May 29.
Here’s what Baron Funds said about AbbVie Inc. (NYSE:ABBV) in its Q1 2023 investor letter:
“In a difficult quarter during which the Health Care sector failed to participate in the broader market rally, Baron Health Care Fund modestly trailed the Benchmark by 42 basis points, as disappointing stock selection overshadowed favorable impacts from differences in sub-industry weights and cash exposure. Lower exposure to benchmark heavyweight AbbVie Inc. (NYSE:ABBV) and declines in Cytokinetics, Incorporated, Ascendis Pharma A/S, and Inhibrx, Inc. also weighed on performance in the sub-industry. We reduced our position in AbbVie Inc. due to our less optimistic view of the company’s pipeline and long-term growth profile.”
4. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 77
CVS Health Corporation (NYSE:CVS) is a Woonsocket, Rhode Island-based diversified healthcare company that operates through various segments like pharmacy services, retail and long-term care segment, healthcare benefits, and corporate. The company is widely popular due to its extensive retail pharmacy chain CVS Pharmacy. In an update issued to investors following the company’s Q1 2023 results, Credit Suisse assigned CVS Health Corporation (NYSE:CVS) stock a target price of $96 along with an Outperform rating. The investment firm believes that the earlier-than-expected completion of the Oak Street deal will aid CVS Health Corporation (NYSE:CVS) in unlocking accelerated growth opportunities.
Here’s what Greenlight Capital said about CVS Health Corporation (NYSE:CVS) in its Q1 2023 investor letter:
“Second, we will discuss Oak Street Health (OSH), which we closed out after costing us 0.8% (net) during the quarter. CVS Health Corporation (NYSE:CVS) is buying OSH for $39 per share, or about $10 billion. When shorting, there is always the risk that someone with deep pockets will buy out the company at a silly price, or maybe even at twice a silly price. CVS is worth $115 billion (or it was the day they announced the deal; subsequently, CVS’s shares have fallen and it’s now worth $93 billion), so it can afford to piss away $10 billion.
OSH is in value-based care, which has become a trendy segment of the market. Most of the “value” comes from doing a more thorough and aggressive job of documenting how sick a patient is, so as to maximize Medicare payments. OSH operates 169 clinics (costing between $1.5-$2 million to build) in mostly lower income neighborhoods and employs 600 doctors. CVS projects that in 2026 the pro forma entity will have 300 clinics and “embedded EBITDA” of $2 billion, plus over $500 million of synergies.
In 2022, OSH generated less than $1 million of adjusted revenue per doctor2 and lost $500 million (almost $3 million per clinic). Even if it triples the number of doctors by 2026, it will need over $1 million of “embedded EBITDA” per doctor, implying margins shifting from a loss to nearly 100%. Obviously, this can’t happen, as the doctors need to be paid and there are other substantial costs. The amazing thing is that when rumors of this deal circulated, we reached out to CVS management and had a call where we walked them through the math… and they went ahead with the deal anyway. When the proxy came out, it revealed that OSH conducted an auction and, like a late-night eBay shopper who had one too many glasses of wine, CVS raised its uncontested bid several times… Rant over.”
3. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP)
Number of Hedge Fund Holders: 77
Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is a Dublin, Ireland-based biopharmaceutical company. In December, Amgen Inc. (NASDAQ:AMGN) reached an agreement to acquire Horizon Therapeutics Public Limited Company (NASDAQ HZNP) for $116.50 per share in cash. This deal valued the biotech company at approximately $27.8 billion. However, the deal hit a snag after the US Federal Trade Commission (FTC) decided to file a lawsuit in federal court. The FTC claims that a proposed deal between the two parties could cause monopoly concerns as Amgen Inc. (NASDAQ:AMGN) could use the rebates on its existing blockbuster drugs to pressurize health insurance companies into favouring the use of Horizon Therapeutics Public Limited Company’s (NASDAQ:HZNP) monopoly products in the treatment of thyroid eye disease and refractory gout.
Citadel Investment Group was the leading hedge fund investor in Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) during Q1 2023. The hedge fund raised its stake in the company by over 200% during the first quarter of the year.
2. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 86
Johnson & Johnson (NYSE:JNJ) has become a more healthcare-focused company following the completion of the $41 billion spin-off and initial public offering (IPO) of its consumer healthcare group, Kenvue, in May. The company has now emerged as a candidate to take over Shockwave Medical, Inc. (NASDAQ:SWAV) alongside Medtronic plc (NYSE:MDT). There is a widespread belief that the New Brunswick, New Jersey-based pharmaceutical and medical device company could expand further by acquiring Shockwave Medical, Inc. (NASDAQ:SWAV) due to its expected revenue growth and strong but underappreciated drug pipeline.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 116
UnitedHealth Group Incorporated (NYSE:UNH) is expected to see its bottom line grow at a healthy pace for the next few years, according to Sarah James at Cantor Fitzgerald. The analyst initiated coverage on the stock with an Overweight rating and a target price of $591 on April 20. James sees a favourable setup for UnitedHealth Group Incorporated (NYSE:UNH) as the company has been able to diversify its operations and incorporate innovation into its business model.
Here’s what RiverPark Advisors said about UnitedHealth Group Incorporated (NYSE:UNH) in its Q1 2023 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): We re-initiated a position in UnitedHealthcare, a position we last held in January of 2022. The company’s stock price had fallen roughly 17% from its peak in October 2021 on fears about Medicare reimbursement rates, and we used this dislocation to start purchasing shares of what we believe to be the most dominant and complete managed care company in the industry.
With several at-scale and interconnected businesses, UNH occupies a unique position within the U.S. healthcare system. UnitedHealth has (a) a dominant managed care organization in commercial, Medicare and Medicaid markets, (b) a large and growing presence in local care delivery (OptumHealth’s physicians and ambulatory service centers), (c) one of only three at scale pharmacy benefits managers (OptumRx’s PBM) and (d) a fast-growing healthcare information technology (HCIT), consulting and revenue cycle management (RCM) business (OptumInsight). The combination of the largest MCO (UnitedHealth) with the faster-growing, higher-margin Optum services businesses positions the company to capture a large portion of the future growth opportunities in the U.S. healthcare services industry. We expect balanced growth from both health insurance and health services leading to consistent high-single-digit revenue growth for the company. With margin expansion from scale, share buybacks from its strong cash generating ability (the company currently has $30 billion in net cash), and continued strategic acquisitions, we believe the company can generate mid-teens or better earnings growth for the foreseeable future.
UNH shares were down slightly from where we re-initiated a position during the quarter, causing them to be a top detractor (-0.02%) in an overall strong quarter where few positions were down.”
Disclosure: None. You can also take a look at the 20 Biggest Shipping Companies In The World and the 15 Most Undervalued Growth Stocks To Buy.
