We recently published a list of 8 Most Promising Healthcare Stocks According to Hedge Funds. In this article, we are going to take a look at where Johnson & Johnson (NYSE:JNJ) stands against other most promising healthcare stocks according to hedge funds.
The Healthcare Sector: Growth, Innovation, and the Impact of AI
The healthcare sector depends on medical technology advancements, particularly devices used in disease prevention, diagnosis, and treatment. Unlike pharmaceuticals, medical devices work through physical or mechanical means rather than chemical processes. Key products include pacemakers, imaging equipment, dialysis machines, and implants.
In the US, the healthcare sector is flourishing. According to a recent estimate, the country’s healthcare spending increased by 7.5% in 2023, above the nominal GDP growth rate for the same year. A record 93.1% of Americans now have health insurance, which helped fuel last year’s sharp increase in healthcare spending. The country’s national healthcare spending is expected to increase at an average rate of 5.6% between 2023 and 2032, above the 4.3% growth predicted for GDP.
Additionally, the industry is growing quickly on a global scale. According to recent McKinsey projections, healthcare profits would increase at a compound annual growth rate (CAGR) of 7% from $583 billion in 2022 to over $800 billion by 2027. Although labor shortages and rising inflation rates continued to pressure the business in 2023, a good risk-reward climate in the sector is expected to make 2024 a year of recovery. According to the American investment firm, the events of 2023 have produced an alluring opportunity for investors to engage in the healthcare industry.
According to research published this month by Silicon Valley Bank, investments in artificial intelligence (AI) in the healthcare sector have also increased dramatically in recent years, expanding at a rate twice as fast as the IT sector. According to the report, businesses using AI account for one out of every four dollars spent in the healthcare industry. The Silicon Valley Bank anticipates that over $11 billion will be spent in the AI healthcare industry this year, with an estimated $2.8 billion already invested in 2024.
Investor confidence in the healthcare industry is still high, according to Deloitte’s 2024 Global Health Care Sector Outlook. The industry received $31.5 billion in private equity funding between 2019 and 2022. Over the next five years, the United States healthcare sector might save almost $360 billion thanks to the numerous businesses integrating artificial intelligence into their operations. Shortly, AI is probably going to have a big impact on medical administration, diagnosis, treatment, and patient care. Predictive analytics and health record automation are expected to further improve the effectiveness of healthcare providers and their offerings.
In recent months, growing economic uncertainty has prompted a shift toward more defensive stocks, with healthcare emerging as a key beneficiary. The broader market’s healthcare sector has surged by over 3.6% and in the past year, it has returned over 11%. In view of this, we will take a look at some of the most promising stocks from the healthcare sector.
Our Methodology
For our methodology, we picked the most weighted stocks from the iShares Global Healthcare ETF and then ranked them based on their total number of hedge fund holders as of Q3 2024, as tracked by the Insider Monkey database.
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).
A smiling baby with an array of baby care products in the foreground.
Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 81
Johnson & Johnson (NYSE:JNJ) is a global healthcare giant that operates in three main segments: pharmaceuticals, medical devices, and consumer health products. The company develops and manufactures a wide range of products, from everyday items like Band-Aids and Tylenol to advanced medical devices and innovative prescription drugs.
The regulatory approvals for RYBREVANT and TREMFYA have been acquired by Johnson & Johnson (NYSE:JNJ). The company strengthened its position in cardiovascular intervention and medical technology by acquiring Shockwave Medical in April. It is anticipated that all segments will rise at a compound annual growth rate of 5–7% between 2025 and 2030. Furthermore, there are about ten assets in the Innovative Medicine sector that might generate over $5 billion in expected operational sales each.
Johnson & Johnson (NYSE:JNJ) is a strong dividend payer, having raised its payouts for over 60 consecutive years. The company offers a quarterly dividend of $1.24 per share for a dividend yield of over 3%.
As of Q3 2024, 81 hedge funds tracked by Insider Monkey held stakes in Johnson & Johnson (NYSE:JNJ) with Fisher Asset Management being the largest stakeholder with stakes worth over $1.2 billion.
Overall, JNJ ranks 4th on our list of most promising healthcare stocks 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 time frame. If you are looking for an AI stock that is more promising than JNJ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.