The 13 Best Healthcare Stocks to Buy for 2021
Most of the best healthcare stocks for 2021 will have some sort of ties to COVID, whether it's producing a vaccine or cure, or benefiting from the virus tapering off.
The most important healthcare story of 2020 was COVID-19, without a doubt. It was an event with few peers, and it challenged some parts of the sector while elevating others.
And in one way or another, COVID likely will have an impact on many of 2021's best healthcare stocks.
By mid-November 2020, the globe had suffered 57 million coronavirus cases causing nearly 1.4 million deaths. That includes 11.6 million cases here in the U.S. that have so far claimed the lives of 250,000 Americans. That's not to mention the additional adverse health effects the virus has had on millions of survivors.
Naturally, then, there are two types of healthcare companies that stand out as the biggest potential winners of 2021: companies that are able to produce a widely used vaccine or treatment for the virus, and resilient firms that held tough through the worst and can benefit from a gradual return to normalcy.
Here, we explore 13 of the best healthcare stocks to buy for 2021. Some of these picks are in the later stages of developing COVID products, while others sport business models that are designed to do well in most market conditions (but should enjoy a bump when the virus finally begins to recede).
Data is as of Nov. 18. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts' opinions courtesy of S&P Global Market Intelligence.
- Market value: $326.9 billion
- Dividend yield: 1.5%
- Analysts' opinion: 15 Strong Buy, 7 Buy, 4 Hold, 1 Sell, 0 Strong Sell
What a difference a year makes.
Last fall, UnitedHealth Group (UNH, $344.51) was struggling to deliver any kind of performance for its shareholders due to the threat it faced from potential "Medicare for All" proposals by Democratic presidential candidates.
Thankfully (for UnitedHealth), Joe Biden became the Democratic nominee over the summer, and subsequently president-elect. Managed-care stocks will do better under Biden, who's against Medicare for All, and UNH might end up being one of the best healthcare stocks of 2021.
However, while Biden is said to dislike a single-payer healthcare system, he does believe in a "Medicare-like government option," which means as many as 23 million Americans could become eligible for Medicare or something similar.
UnitedHealth reported third-quarter results in October that included an 8% increase in revenue to $65.1 billion, along with adjusted earnings per share of $3.51, down slightly from a year earlier. However, in the first nine months of fiscal 2020, UNH's adjusted earnings per share grew by 30% year-over-year to $14.36.
In the first three quarters, UnitedHealth generated $16.1 billion in cash flow from its operations – a healthy 120% of its net income in the first nine months. UNH's ability to churn out so much cash means nothing but good things for its dividend, which has rocketed 150% since the beginning of 2016.
- Market value: $86.2 billion
- Dividend yield: N/A
- Analysts' opinion: 6 Strong Buy, 4 Buy, 7 Hold, 0 Sell, 3 Strong Sell
One of the major concerns facing Intuitive Surgical (ISRG, $733.38) is the competitive threats from medical-tech heavyweights such as Medtronic (MDT) and Johnson & Johnson (JNJ). They've both been developing robotic surgical systems to compete with Intuitive's da Vinci platform.
Fortunately, COVID-19 has set their timelines back, giving Intuitive some breathing room before competition heats up. Analysts don't expect either company to bring something to market until 2022 at the earliest, so ISRG is set up to be among the more lucrative health stocks of the year to come.
"This gives (Intuitive) more of a land grab (opportunity) ahead of competitive robot launches," SVB Leerink analysts wrote in July. "Even though capital purchasing over next 6-12 months is likely to be limited, there is now extra time to go penetrate the market when capital purchasing resumes ahead of competitive launches likely in the 2022-2024 timeframe."
Despite a slowdown in surgical procedures earlier in the year due to COVID-19, Intuitive Surgical's third-quarter report suggests its business is getting back to pre-pandemic procedure levels. They grew by 7% year-over-year during Q3. However, it only shipped 195 da Vinci surgical systems in July through August. And third-quarter non-GAAP (generally accepted accounting principles) net income came to $2.77 per share, down from $3.43 a year ago.
But ISRG finished the quarter with $6.4 billion in cash and zero debt. This sound balance sheet has allowed Intuitive Surgical to not only ride out COVID-19, but remain aggressive. In late October, ISRG launched Intuitive Ventures, a $100 million fund committed to making healthcare investments in other companies disrupting the industry.
- Market value: $5.4 billion
- Dividend yield: N/A
- Analysts' opinion: 9 Strong Buy, 3 Buy, 1 Hold, 0 Sell, 0 Strong Sell
Curaleaf Holdings (CURLF, $10.16) is a vertically integrated seller of medicinal and recreational cannabis in the U.S., with operations in 23 states, including Arizona, Florida, New Jersey, Massachusetts and New York.
In November, it divested some of its assets in Maryland for $31.5 million to move ahead with its purchase of Maryland Compassionate Care and Wellness, which operates a 55,000-square-foot co-located cultivation and processing facility in Taneytown, Maryland.
Curaleaf has reported excellent results so far in 2020. During its second quarter, pro forma revenues (including acquisitions) were $165.4 million, 12% higher than its Q1 sales. Retail revenue was $66.3 million (+17% sequentially), wholesale revenues were $33.3 million (+63%) and management fees of $17.9 million were down 8%.
Total sales, which include all three segments listed above, rose 22% sequentially to $117.5 million, and 142% over the same period. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization – a good measure of operational profitability) was $28 million, up from $20 million in the previous quarter and $4.4 million a year earlier.
"We note that Curaleaf currently has a revenue run-rate that is likely in excess of US$750-million – making CURA by far the largest global cannabis company by revenues." Canaccord Genuity analyst Matt Bottomley wrote at the time.
Looking forward, it's difficult to find negative opinions on Curaleaf. As 2020 comes to a close, 12 analysts view Curaleaf as a Buy or Strong Buy, and the remaining dissenter even says it's a Hold.
- Market value: $159.6 billion
- Dividend yield: 0.3%
- Analysts' opinion: 14 Strong Buy, 4 Buy, 1 Hold, 0 Sell, 1 Strong Sell
If you've followed Danaher's (DHR, $224.70) history, you'll know that it started life as a real estate investment trust (REIT) in 1969 before being converted into an industrial conglomerate in 1984. It hasn't looked back.
Danaher, which operates under brands such as Beckman Coulter and Cepheid, also has an interesting motto: "One of the Core Values we live by at Danaher is We Compete for Shareholders, and we believe we are uniquely positioned to deliver meaningful, long-term shareholder value for many years to come," CEO Rainer M. Blair says. It's not just talk: Danaher has averaged 19.2% total returns (price plus dividend) over the past decade, versus 13.6% for the S&P 500.
DHR operates via three segments: Environmental & Applied Solutions, Life Sciences, and Diagnostics. All three businesses are doing well in 2020, but the Life Science business is really delivering for shareholders. In the first nine months of Danaher's fiscal year, the division put up revenues of $7.2 billion, 44% higher year-over-year. A big part of the increase came from DHR's $20.7 billion purchase of General Electric's (GE) life sciences division in late March.
Danaher was required by regulators to sell some of the assets acquired from GE. It received after-tax profits of $305 million on the divestiture. The division, which will be rebranded Cytiva within Danaher, sported an estimated $3.2 billion in annual revenue at the time.
The company's overall revenues in the third quarter, excluding Cytiva, rose 14% year-over-year, so it's still getting the job done organically, too.
Another area that continues to improve is cash. Danaher grew free cash flow by 110% in Q3, to $1.5 billion. It converted 174% of net earnings from operations, considerably higher than its 116% conversion ratio a year earlier.
That kind of operational excellence should make DHR one of the market's best healthcare stocks in 2021.
- Market value: $37.9 billion
- Dividend yield: N/A
- Analysts' opinion: 4 Strong Buy, 1 Buy, 3 Hold, 0 Sell, 1 Strong Sell
Idexx Laboratories (IDXX, $444.06), which specializes in diagnostic and technology-based products for companion animals, is having another unbelievable year in the markets. IDXX shares have jumped 70% year-to-date, boosting its 10-year annual total returns to a whopping 30%.
Idexx estimated that its 2020 revenues would be at least $2.61 billion in revenue with earnings per share of $5.30. Due to the pandemic, it decided not to provide guidance for 2020 or 2021.
However, through the first nine months of the year, revenues are up 10.3% over 2019 to nearly $2 billion, while earnings have shot 22.1% higher year-over-year to $4.70 per share. The pandemic has made it more difficult for owners of companion animals to get in to see their vets, but business still has been brisk for diagnostic products.
Once a vaccine is found that allows life to go back to normal, Idexx should continue to grow in 2021 and beyond.
Johnson & Johnson
- Market value: $388.0 billion
- Dividend yield: 2.7%
- Analysts' opinion: 8 Strong Buy, 4 Buy, 6 Hold, 0 Sell, 0 Strong Sell
Johnson & Johnson (JNJ, $147.37), one of the market's largest healthcare stocks, announced Oct. 27 that it would resume Phase 3 trials for its COVID-19 vaccine after a two-week pause prompted by a sick patient. The Data Safety and Monitoring Board found it safe to resume the trial because it could not find an exact cause for the patient's serious medical issue.
The company's Covid-19 vaccine candidate, Ad26.COV2-S, requires one dose and can be transported without requiring new or special infrastructure for global distribution. Meanwhile, Pfizer's (PFE) more-hyped vaccine requires two doses and has stringent storage-temperature requirements.
In early November, J&J announced that Aspen Pharmacare had agreed to manufacture its vaccine if successful. Based in South Africa, Aspen's factory can accommodate the manufacture of 300 million doses per year. The company's Port Elizabeth factory currently manufactures drugs for late-stage cancer, Parkinson's and several autoimmune illnesses.
Johnson & Johnson's stock has severely underperformed in 2020, up 3.4% year to date, including dividends. However, compared to its drug manufacturing peers, it's up 1.2% on a relative basis.
JNJ should be one of the best healthcare stocks in 2021 after an uneventful 2020, but there's no one screaming driver – the stock just has a lot of things going for it. Annual operational sales and earnings guidance for 2020, released in October, was higher than July forecasts. Analysts expect a 12% jump in earnings in 2021. The stock is cheaper than the market at less than 17 times profit estimates.
And, of course, JNJ is a Dividend Aristocrat, so it should continue delivering a decent amount of income.
- Market value: $27.0 billion
- Dividend yield: N/A
- Analysts' opinion: 7 Strong Buy, 6 Buy, 9 Hold, 0 Sell, 0 Strong Sell
Alexion Pharmaceuticals (ALXN, $123.47) didn't really light it up in 2020. Through mid-November, it had a total return of 14.2% – that's better than the broader market by 2 percentage points, but about 1 percentage point lower than the broader biotech industry.
Still, Alexion is trying to set itself up for future success. In 2020, just as it did in 2019, Alexion has made a billion-dollar acquisition. In early July, it closed its $1.4 billion purchase of Portola Pharmaceuticals. The deal added depth in hematology, neurology and critical care while providing further diversification away from paroxysmal nocturnal hemoglobinuria (PNH) drug Soliris, which contributed 66% of Alexion's sales in the third quarter ended Sept. 30.
But what makes ALXN an attractive healthcare stock to buy for 2021 is the fact that not everyone was on board with the acquisition.
Activist investor Elliott Management's U.K. subsidiary sent an open letter to Alexion's board in May criticizing the company's purchase of Portola Pharmaceuticals as well as Andexxa, its poorly performing bleeding drug launched in 2018.
"(The Portola acquisition) offers the latest evidence in support of our view that the Board is taking Alexion in the wrong direction, and that the Company's current strategy is unlikely to restore the market's perceptions of Alexion's attractiveness and uniqueness," Elliott wrote in May. "We believe that this Board is in urgent need of fresh perspectives and a new direction."
Elliott believes Alexion should be sold to a strategic buyer in the pharmaceutical industry that can benefit from its pipeline of drugs while delivering top- and bottom-line growth.
If Elliott gets its wish, 2021 could be a fruitful year for shareholders.
- Market value: $6.4 billion
- Dividend yield: N/A
- Analysts' opinion: 8 Strong Buy, 2 Buy, 2 Hold, 0 Sell, 0 Strong Sell
Of all the healthcare companies discussed in this article, LHC Group (LHCG, $203.57) is the likeliest to have flown under your radar. That's OK. The provider of in-home healthcare services doesn't have much time to toot its own horn – it's too busy helping seniors live more comfortably in their own homes.
LHC Group partners with more than 400 U.S. hospitals and health systems in 35 states and the District of Columbia to provide high-quality care to more than 525,000 patients annually. Its 770 locations reach 60% of the U.S. population 65 or older, and it's growing every day.
The demand for the company's services as a result of COVID-19 seems likely to increase as more Americans determine that long-term care facilities might not be the safe havens they were thought to be.
LHCG's latest results included a 0.4% year-over-year uptick in net services revenues, to $530.7 million. But the bottom line of $51.3 million was almost 30% better than the year-ago figure. More importantly, it raised its fiscal 2020 guidance from $2.025 billion at the midpoint to $2.065 billion. Its adjusted EBITDA is expected to be $234.5 million at the midpoint, $9.5 million higher than its August guidance for the year. And it expects another strong performance in 2021.
If LHCG provides anything close to its three-year average annual total return of 44% in 2021, it likely will be among the best healthcare stocks in your portfolio.
- Market value: $3.7 billion
- Dividend yield: N/A
- Analysts' opinion: 10 Strong Buy, 5 Buy, 2 Hold, 0 Sell, 0 Strong Sell
Could 2021 be the year GW Pharmaceuticals (GWPH, $119.30) gets a buyout offer from Big Pharma?
Maybe. But even if it isn't, GWPH should do great.
GW Pharmaceuticals manufactures Epidiolex, which treats certain types of childhood epilepsy. And it's generating significant growth from its cannabidiol-derived drug. In the third quarter ended Sept. 30, 2020, GW saw revenues grow 51% to $137.1 million. For the first nine months of 2020, sales jumped 87.1% to $378.6 million.
Its business is on fire. But the fact that GWPH doesn't make money – it had an operating loss of $29.0 million during 2020's first nine months – likely has scared away some investors. It should make you feel better to know that the loss was 71% lower year-over-year. Things are getting better.
At the same time it released its third-quarter results, GW Pharmaceuticals reported it had begun a Phase 3 study in the U.S. for Nabiximols, which is used to treat multiple sclerosis-associated spasticity. Known as Sativex outside the U.S., the oral spray is approved for use in more than 25 countries worldwide. It's formulated from extracts of the cannabis plant.
"This Phase 3 trial is one of five pivotal studies planned for nabiximols in MS spasticity, with the remaining studies on track to commence either later this year or in 2021. GW expects that a positive result in any one of these five studies will enable an NDA submission, potentially as early as mid- next year," GW said via press release.
"Beyond Epidiolex, management reiterated their confidence in the opportunity for their large Nabiximols ph3 program to generate requisite data to bridge their prior EU trials and support an NDA," write Stifel analysts. "Any one of the 5 studies could serve this purpose, with initial data likely coming mid-21."
GWPH has an overwhelmingly bullish analyst camp, but interestingly, despite its excellent Q3 results, three firms lowered their 12-month price targets. Even then, the average PT of those three analysts is $157, some 32% above where shares are currently trading.
GW Pharma has "home run" written all over it.
- Market value: $5.7 billion
- Dividend yield: N/A
- Analysts' opinion: 2 Strong Buy, 2 Buy, 0 Hold, 0 Sell, 1 Strong Sell
It's hard to imagine that a stock boasting 2,160% gains in one year could be expected to outperform again in 2021. But when you have Grade A potential, you make the cut.
Novavax's (NVAX, $89.91) meteoric rise got a major boost in July when Operation Warp Speed, the Trump administration's efforts to develop COVID-19 vaccines and treatments, awarded $1.6 billion to NVAX to get its drug across the finish line.
The New York Times reported in July, if not for a $388 million commitment from the Coalition for Epidemic Preparedness Innovations to invest in Novavax's vaccine development plans, along with some enthusiastic comments from executives at the Bill & Melinda Gates Foundation, the vaccine might never have been paid any consideration by the White House.
And while there are plenty of skeptics, the company is on the cusp of something big.
On Nov. 9, Novavax announced that the U.S. Food and Drug Administration (FDA) granted its Covid-19 vaccine, NVX-CoV2373, Fast Track Designation. This expedites the regulatory process. The company's Phase 3 clinical trial is expected to start by the end of November.
In the U.K., where it already has a Phase 3 clinical trial underway, it could have interim data by sometime in the first quarter of 2021. If it's anywhere near as positive as Pfizer's data, Novavax could be one of the best healthcare stocks of 2020 and 2021.
Still, treat this as a very speculative stock, and only buy with money you can afford to lose. Any stock that has risen so much on a single driver could get burned just as badly and quickly should things go awry.
- Market value: $86.8 billion
- Dividend yield: 3.0%
- Analysts' opinion: 13 Strong Buy, 7 Buy, 8 Hold, 0 Sell, 0 Strong Sell
The big news for shareholders of CVS Health (CVS, $66.35) in November was the healthcare company's announcement that Karen Lynch would become its next CEO, succeeding Larry Merlo, who's been in the top job since March 2011.
Lynch is currently Executive Vice President of CVS Health and President of its Aetna division. She officially becomes CEO on Feb. 1, 2021. Merlo will remain on the board until the company's annual meeting next May. At which point, he'll retire from the board.
Once Lynch takes over, CVS becomes the largest U.S. company run by a woman. Lynch came over to CVS in 2018 when the company acquired Aetna for $69 billion. Before Aetna, Lynch worked for Magellan Health Services in the role of president.
Merlo's moves over the years to transition it from a regional retail pharmacy to a healthcare powerhouse have yet to pay dividends for shareholders. CVS stock, over the past 10 years, has generated annualized total returns of 10.1%, about 350 basis points worse than the S&P 500. (A basis point is one one-hundredth of a percent.)
That said, Merlo established a solid foundation that Lynch should be able to build upon.
"Never before has our purpose been more critical than during these unprecedented times. Together with the CVS Health leadership team and all of our colleagues, I will work to build on the strong foundation Larry has put in place to continue to make healthcare more accessible and affordable, driving better health outcomes for our consumers and communities," Lynch said in CVS' press release announcing the transition.
Yes, CVS Health will continue to face various pressures, such as Amazon.com's (AMZN) move into pharmaceutical sales. But CVS is dirt-cheap at less than 10 times forward-looking earnings estimates, yields 3% and is still projected to grow across its numerous business lines.
2021 could be CVS' time to shine.
ARK Genomic Revolution ETF
- Assets under management: 3.4 billion
- Dividend yield: 1.6%*
- Expenses: 0.75%
Catherine Wood, portfolio manager of the ARK Genomic Revolution ETF (ARKG, $74.27), is one of the investment industry's 2020 success stories. She is currently helming several of the year's most successful exchange-traded funds (ETFs), including ARKG, which was up 128% through mid-November.
The actively managed ETF focuses on cutting-edge science and technology that advance the quality of life. Areas of interest include CRISPR (clustered regularly interspaced short palindromic repeats), DNA sequences, targeted therapeutics, stem cells, and several others.
Like most of Wood's ETF portfolios, ARKG typically holds between 30 and 50 healthcare stocks. The portfolio companies have a weighted average market cap of $7.2 billion and a median market cap of $1.9 billion, suggesting that the risk is higher than your typical healthcare ETF.
However, its track record since launching in October 2014 is excellent, with an annualized total return of 22.9%.
Many of the ETF's top 10 holdings probably wouldn't be household names for most investors except Teladoc Health (TDOC). Wood recently added to her holdings in the virtual on-demand healthcare provider.
For anyone interested in diversifying their investments to include more innovative healthcare bets, consider paying 0.75% annually to Wood and have her do the heavy lifting for you.
*Dividend yield is the trailing 12-month yield, which is a standard measure for equity funds.
Invesco S&P 500 Equal Weight Health Care ETF
- Market value: $733.5 million
- Dividend yield: 0.6%
- Expenses: 0.40%
The Invesco S&P 500 Equal Weight Health Care ETF (RYH, $249.54) is a holdover from Kiplinger's list of the 13 best healthcare stocks to buy for 2020.
For good reason.
RYH tracks the S&P 500 Equal Weight Health Care Index's performance, including all of the healthcare stocks in the S&P 500. Unlike most healthcare ETFs, which are weighted toward the largest companies held in a fund, all 63 holdings of Invesco's ETF start are weighted equally and rebalanced four times a year, in March, June, September, and December.
This means that you get real diversification as opposed to window dressing. And Invesco has a good way to explain why investors ought to consider an equal-weight fund.
Its website points out that in March 2018, it took 108 of the smallest stocks in the S&P 500 to equal the largest in terms of market cap. Another stat points out that 10 stocks account for 20% of the S&P 500, while it takes 94 stocks to account for 20% of the S&P 500 Equal Weight Index. If you really want diversification, equal weighting is the way to go.
Consider that while Invesco's ETF commits about 18% of assets to its top 10 holdings, the Health Care Select Sector SPDR Fund (XLV) concentrates more than half of assets in its top 10.
RYH has also provided outperformance, producing an annualized total return of 13.0% since inception in November 2006, which compares to an 8.7% return for the S&P 500. And Invesco charges a reasonable fee for that performance.