11 Best Healthcare Stocks for the Rest of 2021
The 2020s could be the decade of healthcare stocks. Here are 10 companies and one ETF to watch not just for the remainder of this year, but well beyond.
The first two years of the 2020s have been all about COVID-19, and that has acted as a weight around the neck of a great many healthcare stocks. However, innovation in the medical arena is likely to accelerate over the next 10 years, providing investors with all kinds of opportunities to ride some of the sector's biggest disruptors to major profits.
For this reason, some are suggesting this might still be the decade of healthcare stocks.
"There's never been a more exciting time," says Rich Wolf, portfolio manager at Capital Group, as reported by the Wealth Professional in early July. "It started with the sequencing of the human genome. We've developed and improved these tools over the last two decades, and now we're using them not only to provide more accurate diagnostics, but to actually develop better therapies and to match therapies to those diagnostics."
As we've entered the second half of 2021, there are signs all around of healthcare stocks springing to life, and this will likely continue as coronavirus vaccines bring life back to normal.
So, which names should we watching?
Here are 10 of the best healthcare stocks and one exchange-traded fund (ETF) to keep an eye on for the remainder of 2021. And even if the 2020s turn out to not be the decade of healthcare stocks, these 11 investments are designed to do well over the long haul in most market conditions.
Data is as of July 12. 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: $392.6 billion
- Dividend yield: 1.4%
- Analysts' opinion: 17 Strong Buy, 5 Buy, 3 Hold, 1 Sell
UnitedHealth Group (UNH, $416.04) published its 2020 Sustainability Report in mid-June. One of its significant commitments is to provide preventive care services to at least 85% of its 49.5 members annually, up from 78% in 2019. These services include routine wellness visits, cancer and other health screenings, as well as the management of chronic conditions and vaccinations.
By providing these services, UNH expects to lower the overall healthcare costs of its members, delivering better outcomes and profits as a result.
UnitedHealth's most recent quarterly report included a 9% increase in revenues to $70.2 billion. Both its UnitedHealthcare (healthcare benefits) and Optum (healthcare services) units experienced sales growth during the quarter. UnitedHealthcare accounts for 60% of total revenues, with Optum generating the other 40%.
The insurance giant had adjusted earnings per share (EPS) of $5.31 during the first quarter, up 42.7% from the year earlier. It generated $6.0 billion in cash flow from operations, a healthy 120% of net income. UnitedHealth Group's net margin in the quarter was 6.9%, 170 basis points higher than a year ago, and a 350 basis-point improvement over Q4 2020.
UnitedHealth expects to earn on an adjusted basis between $18.10 and $18.60 per share in 2021. This guidance includes an impact from Covid-19 of approximately $1.80.
In terms of technical performance, it's one of the best healthcare stocks out there. UNH's year-to-date (YTD) total return is 18.6%, while over the past 52 weeks, it is up 41%.
- Market value: $198.3 billion
- Dividend yield: 0.3%
- Analysts' opinion: 14 Strong Buy, 4 Buy, 2 Hold, 1 Strong Sell
If you've followed the history of Danaher (DHR, $278.01), 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.
The company 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 states on the company's Investor Relations page. DHR has certainly followed through on this statement, with the stock up 25% for the year to date and 51% year-over-year.
On June 17, Danaher announced it would acquire privately held Aldevron, a North Dakota-based biotech that manufactures plasmid DNA, mRNA and proteins, for $9.6 billion in cash. One of Aldevron's customers is Moderna (MRNA). Aldevron supplies MRNA with the plasmid DNA to make its COVID-19 vaccine. The acquisition should give Danaher a nice boost to its life sciences segment.
The company is already getting the job done when it comes to its top and bottom lines. In the three months ended April 2, Danaher's revenues increased 58% year-over-year to $6.9 billion. On a pro forma basis, which includes DHR's $20.7 billion purchase of General Electric's (GE) life sciences division – which it renamed Cytiva – in late March, revenues increased 34.6%.
On a non-GAAP basis, Danaher grew net earnings by 140% to $2.52 per share from $1.05 per share a year earlier. In addition, its free cash flow in the first quarter jumped by 135%, to $1.6 billion from $694 million a year earlier.
For 2021, Danaher's guidance calls for core revenue growth, including Cytiva, in the high-teens.
- Market value: $113.6 billion
- Dividend yield: N/A
- Analysts' opinion: 8 Strong Buy, 2 Buy, 9 Hold, 1 Strong Selll
One of the major concerns facing Intuitive Surgical (ISRG, $959.05) is the competitive threats from medtech 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.
The company's first-quarter report suggests its business is getting back to pre-pandemic levels. Procedures using its da Vinci platform grew by 16% year-over-year in the three-month period.
ISRG also shipped 298 da Vinci surgical systems in the quarter, 26% more than Q1 2020. The company's installed base increased by 8% to 6,142 systems, which led to an 18% increase in revenue to $1.3 billion.
The first quarter included non-GAAP (generally accepted accounting principles) net income of $3.52 per share, up 34.4% from the $2.62 per share it brought in a year earlier. Intuitive Surgical finished the quarter with $7.2 billion in cash on its balance sheet and zero debt.
As a result of its sound balance sheet, not only has it been able to ride out the pandemic, but last October, it launched Intuitive Ventures, a $100-million fund committed to making healthcare investments in other companies that are disrupting the industry through minimally invasive care.
ISRG has a YTD total return of 14.7%, and it's up 61.6% over the past year. However, when it comes to the healthcare stocks featured here, this one is not cheap. Intuitive Surgical trades at 25.4x sales, about 60% higher than its five-year average.
- Market value: $101.6 billion
- Dividend yield: 5.4%
- Analysts' opinion: 2 Strong Buy, 2 Buy, 3 Hold
While it's been on the drawing board since December 2018, GlaxoSmithKline (GSK, $40.08) in late June finally revealed its plan to spin-off its consumer healthcare segment into its own publicly traded company.
The split is expected to happen by the middle of 2022 and should deliver $11 billion for the pharmaceutical company to reinvest in its drug development pipeline. In addition, GSK will hang on to 20% of the consumer healthcare business as part of the separation until it makes financial sense to divest completely.
"I am very aware that GSK shares have underperformed for a long period," GlaxoSmithKline CEO Emma Walmsley said at a subsequent news conference, as reported by Reuters. "Together, we are now ready to deliver a step-change in growth for New GSK and unlock the value of Consumer Healthcare."
Walmsley added that she would continue to head the pharma and vaccines business, which is being called "New GSK." Since it was announced in September 2016 that she would be the next CEO of GSK, replacing the retiring Andrew Witty, the healthcare stock's share price has lost roughly 7% of its value. Before she took over the role as CEO, Walmsley was head of the soon-to-be separated consumer healthcare unit.
As for the remaining GSK business, post-split sales are expected to grow to 33 billion pounds ($45.7 billion) by 2031. They're currently $32.4 billion in the trailing 12 months ended March 31.
Meanwhile, the consumer healthcare business has annual revenue of more than 10 billion pounds ($13.8 billion) from its operations in more than 100 markets worldwide.
- Market value: $96.4 billion
- Dividend yield: N/A
- Analysts' opinion: 5 Strong Buy, 3 Buy, 5 Hold, 2 Sell, 2 Strong Sell
Despite the COVID-19 vaccine maker announcing in April that it would boost its annual capacity from 1 billion doses in 2021 to 3 billion by the end of 2022 – which is likely to generate billions in additional revenue – analysts aren't that keen about Moderna (MRNA, $239.34) stock.
Several analysts rate it either Sell or Strong Sell at the moment, with a median target price of $168.67, well below where it's currently trading.
However, "Moderna believes that this investment in increased supply is necessary due to an expected significant need for booster vaccinations in 2022 and beyond," MRNA stated in an April 29 press release. "The Company highlighted published studies predicting that waning immunity will impact vaccine efficacy within 12 months."
In other words, booster shots will become the norm in 2022 and beyond. As a result, Moderna is in line to profit from its ongoing participation in the vaccine program in the U.S. and elsewhere.
Moderna was able to get its vaccine to market quickly because it had already been working with mRNA technology as far back as 2010 for cancer therapies and 2015 for antiviral vaccines.
According to CNBC, the company has 24 different mRNA vaccines in the pipeline, with 14 undergoing clinical trials. The development of these vaccines is only the beginning of significant changes happening in the biotech industry – and could make MRNA one of the best healthcare stocks for the remainder of 2021 and beyond.
In February, Oppenheimer analyst Hartaj Singh suggested Moderna's market cap could be worth $100 billion in the future. That was based on $10 billion in annual COVID-19 revenue expected in five to seven years from now. At the time, MRNA's market value was perched near $57 billion. At its current valuation, it is just $4.4 billion shy of $100 billion.
- Market value: $51.8 billion
- Dividend yield: N/A
- Analysts' opinion: 14 Strong Buy, 7 Buy, 6 Hold
Vertex Pharmaceuticals (VRTX, $198.34) has certainly not been one of the best-performing healthcare stocks on this list. VRTX is down 16% YTD and 33% over the past 52 weeks. Nevertheless, analysts remain attached to the biotech stock which produces leading cystic-fibrosis drugs including Trikafta, Symdeko, Orkambi and Kalydeco.
In the first quarter of 2021, these four drugs generated $1.7 billion in revenues, with Trikafta accounting for 69% of overall sales. VRTX's sales during the quarter grew by 13.2% year-over-year. On the bottom line, Vertex brought in $781 million on a non-GAAP basis, 15.9% higher than a year earlier.
For all of 2020, Vertex had sales and non-GAAP net income of $6.2 billion and $2.7 billion, respectively.
Vertex stock lost ground in June when the company announced that it had canceled further development of its experimental drug to treat a rare lung disorder known as alpha-1 antitrypsin deficiency, or AATD, for short. Vertex felt VX-864 wouldn't increase a patient's AAT levels enough to justify its development.
This is the third drug in its pipeline that it's canceled since the beginning of 2020 after reporting disappointing clinical trials.
Despite the setbacks, CTX001 – an experimental gene therapy to treat sickle cell disease the company is developing alongside Crispr Therapeutics (CRSP) – is achieving positive results from its clinical trials. In addition, CTX001 is designed so that a patient only has to receive one dose to be effective.
Vertex expects 2021 full-year sales of $6.8 billion at the mid-point of its guidance, with a non-GAAP effective tax rate of 21.5% at the middle of the anticipated range. That's good for a net profit of approximately $1.5 billion.
- Market value: $47.7 billion
- Dividend yield: N/A
- Analysts' opinion: 15 Strong Buy, 4 Buy, 1 Hold, 1 Sell
Iqvia (IQV, $248.62) is a provider of contract research for late-stage clinical trials. In addition, it provides healthcare data analytics to companies. IQV came together through its transformational October 2016 merger of equals between product development specialist Quintiles Transnational Holdings and IT firm IMS Health.
As a result of the merger, IMS Health shareholders received 0.3840 shares of Quintiles stock for every IMS share held. The company was renamed Iqvia Holdings in 2017.
The company has worked with the NFL in the past to perform contact tracing for athletes who've been around those who have tested positive for COVID-19. It identifies those people and lets them know that additional monitoring and testing is required as part of the league's pandemic protocols.
This is just one example of how Iqvia generates revenue.
In Iqvia's first quarter, sales increased 23.8% to $3.4 billion. Excluding currency, sales grew by 21.4% during the three-month period. Of IQV's two major operating segments, Research & Development Solutions had the more robust quarter, with sales up 28.1% year-over-year. In addition, its Technology & Analytics Solutions business experienced 17.1% growth over last year.
The company's research and development (R&D) backlog grew 18.3% in Q1 2021 to $23.2 billion. However, with 12-month revenue of $6.5 billion through the first quarter, it will take Iqvia almost four years to work through its current backlog.
IQV's adjusted net income in Q1 2021 was $425 million, 44.6% higher than a year ago. For all of 2021, Iqvia expects to grow revenue by at least 16.2% to $13.2 billion and adjusted EPS by 32.4% to $8.50.
- Market value: $11.3 billion
- Dividend yield: N/A
- Analysts' opinion: 11 Strong Buy, 6 Buy, 1 Hold
Last November, we took a look at the best healthcare stocks to buy for 2021, and GW Pharmaceuticals made the list. The company manufactures Epidiolex, which treats certain types of childhood epilepsy, and it generated significant growth from this cannabidiol-derived drug. It was also rumored to be a takeover target.
In February, Dublin-based Jazz Pharmaceuticals (JAZZ, $184.79) announced that it would indeed acquire GW for $7.2 billion in cash and stock. Under the agreement terms, Jazz paid $220 per GW share – $200 in cash, plus $20 in JAZZ stock. The combination of the two firms is expected to strengthen Jazz's neuroscience business significantly.
In May, Jazz completed its multi-billion acquisition of GW. Based on the volume-weighted average price of Jazz shares in the 15 days leading up to the closing, GW stakeholders received 0.12036 JAZZ shares for the stock component of the transaction.
In mid-June, Jazz provided an update to its financial guidance for the year that factored in GW's business. It now expects to generate at least $3.0 billion in sales in 2021, up from its previous guidance of $2.6 billion.
Products launched or acquired since 2019 will account for 65% of those sales. Its neuroscience segment is forecast to generate 75% of full-year sales, and its oncology products are expected to account for the rest. On a non-GAAP basis, Jazz expects to make between $13.40 and $14.70 per share in 2021.
Jazz has high hopes for GW. It believes Epidiolex will deliver double-digit revenue over the next few years, further diversifying its top line, as well as boosting shareholder value.
- Market value: $9.6 billion
- Dividend yield: N/A
- Analysts' opinion: 14 buy, 2 overweight, 0 hold
Curaleaf Holdings (CURLF, $13.88) 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. Its operations include 101 dispensaries, 22 cultivation sites and 30 processing sites.
Curaleaf reported record first-quarter results in May. It had record revenue of $260.3 million, 13% higher than its Q4 2021 sales and a 170% improvement from its year-ago results.
Retail revenue grew 14% sequentially and 231% year-over-year, while wholesale revenue rose 12% from the previous quarter and 254% from the year prior. Retail revenue accounted for 72% of total sales, while wholesale accounted for the remaining 28%.
Curaleaf is expanding its product line, too. In early June, CURLF's Select brand announced a partnership with Rolling Stone magazine to produce Rolling Stone by Select, a group of co-branded recreational cannabis products including the company's first-ever Select pre-roll.
Whether it's medical or recreational use, Curaleaf has its customers covered. As for its stock, CURLF has gained 116% over the past 52 weeks, easily beating the performance of both its peers and the broader U.S. market.
Toronto-based Goodreid Investment Counsel believes the marjuana stock is an excellent long-term buy.
"I think you have a very bifurcated industry in the cannabis sector," Goodreid senior vice president Brian Madden told BNN Bloomberg in June. "You have companies that are fundamentally sound like Curaleaf and then you have meme stocks which are the majority of the other ones."
- Market value: $6.6 billion
- Dividend yield: N/A
- Analysts' opinion: 8 Strong Buy, 3 Buy
Of all the healthcare stocks discussed here, LHC Group (LHCG, $208.16) is likely the one flying under the radar for most investors. That's because the provider of in-home healthcare services is too busy helping seniors live more comfortably in their own homes to toot their own horn.
The company has partnered with nearly 400 U.S. hospitals and health systems in 35 states and the District of Columbia to provide high-quality care to 525,000 patients annually. LHCG has more than 800 locations reaching 60% of the U.S. population that are 65 or older, and it's operations are growing every day.
LHC announced its first-quarter results in May. The company saw net service revenues increase by 2.3% year-over-year to $524.8 million. Adjusted net income arrived at $43.6 million for the three-month period, 86.7% higher than a year earlier.
More importantly, LHCG raised its fiscal 2021 guidance from $2.230 billion at the midpoint to $2.24 billion. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is expected to be $295 million at the midpoint, $21 million more than its previous guidance for the year.
Acquisitions are a vital part of the healthcare provider's growth.
Most recently, LHCG announced in early July that it is buying three home health, hospice and palliative care providers that operate in Virginia, Indiana and Arkansas. The annual revenue generated by the purchase of these three businesses is expected to be $8 million. At the same time, LHC Group announced the completion of four other acquisitions with annual revenue of approximately $43 million expected.
Over the past five years, LHC's delivered an annualized total return of 35.2%, nearly double the U.S. markets' performance as a whole and almost three times that of its peers. So far in 2021, the stock is up 15.7%.
Thanks to the company's recent acquisition and the Biden administration's commitment to at-home healthcare, this year will likely continue to be a strong one for LHCG.
Invesco S&P 500 Equal Weight Health Care ETF
- Assets under management: $889.2 million
- Dividend yield: 0.4%*
- Expenses: 0.40%, or $40 annually for every $10,000 invested
For good reason, too.
While most of the healthcare ETFs available are market value-weighted, RYH is equal-weighted. This means that you get real diversification in healthcare stocks, as opposed to window dressing. Invesco has a good way to explain why investors ought to consider an equal-weight advantage.
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.
Unlike market-value-weighted ETFs, which are weighted toward the largest companies held in the fund, all 66 holdings in RYH make up between 1.3% and 1.7% of the fund. The portfolio is also rebalanced four times a year in March, June, September and December.
RYH's top 10 holdings account for 17% of the fund's portfolio. Compare that to the Health Care Select Sector SPDR ETF's (XLV), a market-value-weighted version of the S&P 500 healthcare sector, whose top 10 holdings make up 50% of its portfolio, almost three times RYH.
The fund, which tracks the S&P 500 Equal Weight Health Care Index's performance, including all of the healthcare stocks in the S&P 500, has a history of outperformance, too. It has an annualized total return of 13.5% since inception in November 2006 through June 30, 2021. That compares to 10.4% for the broader S&P 500.
Plus, Invesco's ETF charges a reasonable fee of 0.40% for that performance.
*Dividend yield represents the trailing 12-month yield, which is a standard measure for equity funds.