The 12 Best Healthcare Stocks to Buy for the Rest of 2022
Investors seeking out defensive plays in an uncertain market may want to take a closer look at these 12 top-rated healthcare stocks.
The first two years of the 2020s has been all about COVID-19, and the pandemic has affected healthcare stocks in ways that will likely carry on for years to come.
This helped fuel massive returns for healthcare stocks, with the Health Care Select Sector SPDR ETF (XLV) gaining more than 80% between its March 2020 bottom and April 2022 peak. But more recently, the sector has been hit with broad-market headwinds and depleting COVID-related catalysts.
But before investors give up on healthcare stocks, David Sheaff Gilreath, chief investment officer at independent investment firm Sheaff Brock Investment Advisors, believes they could be considered as potential buy candidates for the second half of the year.
Amid an uncertain market environment, investors can find a "relatively high concentration of companies with low-risk characteristics, low valuations and good earnings growth projections," Sheaff Gilreath wrote in a March op-ed for CNBC.
Savita Subramanian, head of equity and quantitative strategy at BofA Securities, also likes the defensive nature of healthcare stocks, as well as their ability to maintain pricing power.
"We believe the sector is well-positioned amid looming recession risks," Subramanian says. "Healthcare offers growth, defense, and yield at a reasonable price: GARP (growth at a reasonable price), DARP (defense at a reasonable price), and YARP (yield at a reasonable price)."
Here, we explore 12 of the best healthcare stocks to buy for the rest of 2022. Some of these picks are at the forefront of developing new and potentially life-saving drugs and therapies, while others have business models designed to do well in most market conditions.
Data is as of May 24. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings are courtesy of S&P Global Market Intelligence. Stocks are listed in reverse order of analysts' consensus recommendation.
Vertex Pharmaceuticals
- Market value: $68.7 billion
- Dividend yield: N/A
- Analysts' rating: 10 Strong Buy, 7 Buy, 9 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.96 (Buy)
In early May, Jefferies analyst Michael Yee called Vertex Pharmaceuticals (VRTX, $268.48) the "best growth story in large-cap biotech."
This was in reaction to the company's first-quarter earnings report, where it unveiled 22% year-over-year revenue growth to $2.1 billion. For all of 2022, VRTX expects revenue of $8.5 billion at the midpoint of its guidance, which will mark 11.7% growth over 2021.
The company's sales mainly come from its cystic fibrosis (CF) drugs –Trikafta in the U.S. and Kaftrio outside it. These treatments accounted for 84% of VRTX'S overall revenue in its first quarter. But Vertex has more tricks up its sleeve.
"I think there is a bit of a misconception about us as a company that we're a rare or an orphan [disease] company," Stuart Arbuckle, chief operating officer at Vertex, said on the company's Q1 earnings call. "That's not how we define ourselves."
Arbuckle pointed to the growth potential in the various segments of the pain market, including acute and neuropathic. "Acute pain accounts for over $1.5 billion with the B treatment days a year in the U.S. alone," he said. "And despite more than 90% of those prescriptions being generic, the market is valued at $4 billion."
While an opioid could be something VRTX explores down the road, Yee is upbeat about the company's current pipeline that includes potential treatments for APOL1-mediated kidney disease and Type 1 diabetes.
"VRTX has been executing on the core business by meeting or beating estimates (important in this environment), and it has had a number of positive pipeline events fundamentally improving the company's growth outlook," says Yee, who has a Buy rating and $335 price target on the stock. "We also think VRTX will be a beneficiary of the overall macro rotation into less speculative and more defensive large-cap investment stories."
Vertex stock is having a fantastic year, up 22% so far, compared to a roughly 17% decline for the S&P 500. And with plenty of catalysts on the horizon, VRTX appears to be a smart pick among healthcare stocks.
Align Technology
- Market value: $21.3 billion
- Dividend yield: N/A
- Analysts' rating: 8 Strong Buy, 4 Buy, 1 Hold, 1 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.64 (Buy)
Align Technology (ALGN, $270.18) is a medical device company that makes the Invisalign clear dental aligner and iTero intraoral scanner for orthodontists and general dentists.
The company's first-quarter results showed year-over-year revenue growth of 9%, but earnings per share were down 14.4% amid headwinds that included "COVID lockdowns, weaker consumer confidence, inflationary pressures and the Russia/Ukraine conflict," said Joe Hogan, CEO of Align Technology, in the company's press release.
ALGN also temporarily withdrew its guidance due to "less visibility and an increasingly unpredictable operating environment," said John Morici, chief financial officer of Align, on the firm's earnings call.
Amid these fundamental hurdles and broad-market weakness, shares are down nearly 59% for the year-to-date.
So why is ALGN on this list of best healthcare stocks for the rest of 2022?
For starters, even with its recent setbacks both on and off the charts, the company is rewarding shareholders. In early May, Align unveiled a new $200 million accelerated share repurchase program. This is part of the firm's ongoing $1 billion buyback it initiated in May 2021. In addition to the accelerated repurchase agreement, CEO Joe Hogan will personally buy $2 million of ALGN stock.
"Returning capital to our shareholders through stock repurchase programs while simultaneously investing in our strategic growth drivers, is consistent with our capital allocation strategy and commitment to increasing shareholder value," said Morici in the press release.
Additionally, Wall Street's pros remain upbeat toward Align Technology. William Blair analyst John Kreger rates ALGN stock at Outperform (Buy).
Following a recent sit down with management, Kreger conceded that there are certainly short-term headwinds on both the supply and demand side. However, his long-term view remains unchanged. "Both the clear aligner and digital scanner markets are large and underpenetrated; digital integration is becoming increasingly important to dental success; and Align continues to have a significant lead over its clear aligner competitors that will be hard to overcome," he writes in a note to clients.
And analysts still see significant long-term growth opportunities for ALGN. The estimated average rate of earnings growth for Align Technology over the next three to five years is 16.2%, according to S&P Global Market Intelligence.
Still, until the company can provide clearer guidance, Align isn't a stock for risk-averse investors.
UnitedHealth Group
- Market value: $466.8 billion
- Dividend yield: 1.2%
- Analysts' rating: 14 Strong Buy, 6 Buy, 3 Hold, 1 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.63 (Buy)
UnitedHealth Group (UNH, $497.56) has been busy in the M&A department over the past year. Last August, the health insurer announced it would acquire Change Healthcare for nearly $8 billion. The merger date was recently extended to the end of 2022 due to antitrust concerns from the Department of Justice.
In March, UNH said it would acquire leading home healthcare provider LHC Group (LHCG) for $5.4 billion. This potential acquisition appears poised for a fight as well, with one of LHC's stakeholders suing the company, saying it did not provide shareholders with sufficient information to make an informed decision about the sale.
Despite the legal wrangling, UnitedHealth Group's business is doing well.
Its most recent quarterly report included a 14% year-over-year increase in revenue to $80.1 billion. Its UnitedHealthcare (healthcare benefits) and Optum (healthcare services) units experienced double-digit percentage sales growth during the quarter. UnitedHealthcare accounts for 59% of total revenues, with Optum generating the other 41%.
In addition, the insurance giant reported adjusted earnings per share (EPS) of $5.49 for the first quarter, up 3.4% from a year earlier. The Dow Jones stock generated $5.3 billion in cash flows from operations, a reasonable 100% of net income. UnitedHealth Group's net margin in the quarter was 6.3%, 60 basis points (a basis point is one-one hundredth of a percentage point) less than a year ago.
The company's medical care ratio (MCR) – the medical expenses paid out divided by total collected premiums – in the first quarter was 82.0%, 110 basis points higher than a year ago due to a spike in COVID-19 hospitalizations at the start of the year.
UnitedHealth expects to earn, on an adjusted basis, between $21.20 and $21.70 per share in 2022 – a 12.8% improvement at the midpoint over its 2021 EPS.
On the charts, UNH is down modestly for the year-to-date amid broad-market headwinds. However, this has likely created an attractive entry point for investors looking to initiate a position in one of the best healthcare stocks for 2022 and beyond.
HCA Healthcare
- Market value: $60.5 billion
- Dividend yield: 1.1%
- Analysts' rating: 14 Strong Buy, 4 Buy, 5 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.61 (Buy)
HCA Healthcare (HCA, $204.76) is the owner and operator of 182 hospitals, surgery centers, urgent care centers, physician clinics and freestanding emergency rooms in 20 states and the U.K.
HCA reported its first-quarter results in April. Revenues rose 7% to $15.0 billion from $14.0 billion a year earlier. The company's same facility admissions increased by 2.1% year-over-year, with a 14.6% spike in emergency room visits. Same facility revenue per equivalent admission increased 2.7% compared to last year.
Its first-quarter net income was $1.3 billion, or $4.14 a share, compared to $1.4 billion, or $4.14 a share, in Q1 2021. A big reason for the decline in net income during the quarter was lower margins, which were pressured by higher labor costs. Additionally, while 10% of total admissions in the first quarter were COVID-related, the lower acuity and intensity of the omicron variant caused COVID inpatient revenue per admission to decline roughly 15% year-over-year.
As a result, the company lowered its guidance slightly for full-year 2022 revenues. It now expects sales of at least $60.5 billion at the midpoint of its guidance, down from $61.0 billion. HCA also expects to earn $17.00 a share in 2022, down from the $18.80 per share it guided for in late January.
HCA is down about 20% for the year-to-date. However, it remains one of the best healthcare stocks over the long run, with an annualized total return of 18.9% over the past three years – 500 basis points higher than the entire U.S. market.
AMN Healthcare Services
- Market value: $3.9 billion
- Dividend yield: N/A
- Analysts' rating: 6 Strong Buy, 2 Buy, 2 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.60 (Buy)
AMN Healthcare Services (AMN, $88.13) is the largest healthcare staffing company in the U.S. It provides staffing in three main areas: Nursing, Physicians and Technology. More than 60% of the annual revenue generated from its Nursing and Physicians segments comes from Managed Services Programs (MSPs). AMN has more than 500 MSP clients, with its top 30 using more than seven of the company's recruitment solutions.
The company's first-quarter revenue jumped 75% year-over-year to $1.6 billion, while its adjusted EPS more than doubled to $3.49. AMN placed a record number of healthcare professionals during the quarter. As a result, the demand for its services is higher today than before the pandemic.
All three of its operating segments had substantial revenue gains compared to the year-ago period. The Nurse and Allied Solutions segment saw revenues increase by 87%, while Physician and Leadership Solutions experienced a 28% gain, and Technology and Workforce Solutions had a 64% increase in sales during the quarter.
And this impressive growth likely continued into the second quarter. AMN estimates revenue for the three-month period will be up between 56% and 61% to arrive between $1.34 billion and $1.38 billion.
Truist Securities analyst Tobey Sommer has a Buy rating on AMN, with a $130 price target. While the analyst believes that the company could face lower sequential growth in future quarters, its free cash flow generation for the remainder of 2022 should remain strong. In addition, Sommer expects the company to make an acquisition for its Physician and Leadership Solutions business considering it has underperformed its larger peers in recent years.
Overall, the majority of analysts think AMN is one of the best healthcare stocks for the remainder of 2022 as evidenced by the consensus Buy rating.
Baxter International
- Market value: $37.2 billion
- Dividend yield: 1.6%
- Analysts' rating: 9 Strong Buy, 4 Buy, 1 Hold, 1 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.60 (Buy)
Baxter International (BAX, $73.90) manufactures healthcare products such as infusion pumps and tissue sealing devices for use in hospitals, nursing homes, doctors' offices, in-home care and many other settings. Its products are made in more than 20 countries and sold over 100 worldwide.
In December, Baxter acquired Hillrom for $10.5 billion and assumed roughly $2.3 billion in debt. Hillrom contributed greatly to BAX's first-quarter results. The newly acquired business contributed $755 million, or 20%, to Baxter's $3.7 billion in overall sales. Excluding Hillrom's contribution, sales rose 3% year-over-year.
BAX's sales and earnings results in the quarter all exceeded company guidance. For example, Baxter expected adjusted diluted EPS of 79 cents to 82 cents in Q1, reflecting 4%-8% year-over-year growth. The company's actual EPS was 93 cents, 22% higher than Q1 2021.
All but two of its seven product categories had sales growth in the first quarter. The company's Medication Delivery segment sells intravenous administration sets and solutions. Its sales increased by 10% over last year to $706 million, making it the third-largest sales contributor (behind Hillrom and Renal Care).
Immediately following Baxter's Q1 2022 earnings release, Raymond James analyst Jayson Bedford – who has an Outperform rating and an $85 price target on the name – described BAX as "an underappreciated self-help story" among healthcare stocks.
"At roughly 15 times 2023 earnings estimates, we believe sentiment is overly negative and the downside should be limited," Bedford says.
Yielding 1.6%, Baxter is an under-the-radar mixture of income and capital appreciation play.
Danaher
- Market value: $183.2 billion
- Dividend yield: 0.4%
- Analysts' rating: 14 Strong Buy, 3 Buy, 3 Hold, 1 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.57 (Buy)
Danaher (DHR, $252.00) 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 25.1% on an annualized basis over the past five years, double the return of the entire U.S. market. But, like many healthcare stocks, it is down substantially in 2022.
Still, its entire business continues to perform at the top of its game.
In the three months ended April 1, DHR's revenues increased 12% year-over-year to $7.7 billion. On an adjusted basis, Danaher grew net earnings by 9.5% to $2.76 per share. In addition, its free cash flow in the first three months of the year rose by a healthy 5.5% to $1.7 billion.
"We believe that Danaher is well-positioned for growth in 2022 and subsequent years," says Argus Research analyst David Toung (Buy). "The company posted solid first-quarter results, reflecting recovery from pandemic headwinds in its core businesses and strong demand for its COVID-19 testing solutions."
The analyst also called out DHR's M&A activity, as the company has been busy "acquiring assets that have expanded its product offerings and addressable markets."
Toung specifically pointed to Danaher's 2021 acquisition of Aldevron for $9.6 billion in cash. The biotech manufactures plasmid DNA, mRNA and proteins and counts Moderna (MRNA) "With more than 40% revenue growth in Q1 2022, Aldevron is a clear example of Danaher's success in M&A," the analyst says.
Iqvia Holdings
- Market value: $38.6 billion
- Dividend yield: N/A
- Analysts' rating: 13 Strong Buy, 5 Buy, 1 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.37 (Strong Buy)
Iqvia (IQV, $201.99) 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 one example of how Iqvia generates revenue: The company worked with the NFL to perform contact tracing for athletes who have been around those who tested positive for COVID-19. It identified those people and let them know that additional monitoring and testing was required as part of the league's pandemic protocols.
A significant drop in COVID-related work contributed to a slower pace of growth in the first quarter. Sales increased a modest 4.7% from the year before to $3.6 billion. IQV's adjusted net income in the first quarter was $477 million, 12% higher than the year prior.
IQV's major operating segment, Research & Development Solutions (R&DS), had a solid quarter, with sales up 11.1% year-over-year, excluding the reimbursements for costs the company incurred. Meanwhile, its Technology & Analytics Solutions (TAS) business had a 9.8% increase in sales, excluding currency, to $1.4 billion in the quarter, while its Contract Sales & Medical Solutions (CSMS) businesses grew sales by 5.7% to $195 million.
The company's research and development solutions backlog grew 9.1% in the first quarter to $25.3 billion. Iqvia expects $7.0 billion of this backlog to convert to revenue by March 31, 2023. This was the highest-ever quarter for R&DS bookings, according to CEO Ari Bousbib.
IQV was also busy buying back shares in Q1. The company repurchased $403 million of its stock at an average price of $237.06. It has $2.1 billion remaining on its share repurchase program. Since October 2013, it's repurchased $7.2 billion of its shares.
Not only is Iqvia one of the best names to stave off sizzling inflation, it is the first of the healthcare stocks featured here that boasts a consensus Strong Buy rating. "IQV remains a top pick for 2022, and we continue to think IQV is positioned well with both positive earnings revisions and multiple expansion," says UBS Global Research analyst John Sourbeer (Buy).
Prestige Consumer Healthcare
- Market value: $2.8 billion
- Dividend yield: N/A
- Analysts' rating: 5 Strong Buy, 0 Buy, 1 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.33 (Strong Buy)
Prestige Consumer Healthcare (PBH, $55.64) isn't the first name that comes to mind when you say "healthcare stocks." The company sells over-the-counter (OTC) healthcare and household cleaning products to drug stores, mass merchandisers, supermarkets and other distribution channels. Chloraseptic, Clear Eyes, Compound W and Nytol are among its many brands.
PBH reported fiscal fourth-quarter results in early May that included a 12% year-over-year increase in sales to $266.9 million. Excluding currency and acquisitions, sales rose 6%. On the bottom line, its adjusted net income was $46.3 million, 37% higher than the year prior.
For all of fiscal 2022, PBH delivered record results, including double-digit sales (+10%, excluding currency and acquisitions), earnings (+26% on an adjusted per-share basis) and cash flow (+11%) growth. In fiscal 2023, Prestige expects 2%-3% organic revenue growth to at least $1.1 billion. As a result, it estimates its EPS will be at least $4.18 (3% YoY).
While this guidance may suggest modest growth, Oppenheimer analyst Rupesh Parikh called it "upbeat" and raised his rating on PBH to Outperform (Buy) from Perform (Hold). Parikh believes that the company's diversified offering of OTC products in less economically sensitive categories should help it drive growth in these inflationary times.
"We believe defensive money flows and further reductions in leverage could potentially drive multiple expansion over time," the analyst says, while calling PBH a "top small-cap pick."
Arcus Biosciences
- Market value: $1.4 billion
- Dividend yield: N/A
- Analysts' rating: 9 Strong Buy, 1 Buy, 1 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.27 (Strong Buy)
Arcus Biosciences (RCUS, $17.95) is a clinical-stage biotechnology company developing cancer therapies.
RCUS stock sold off sharply in mid-May after Roche Holding (RHBBY) reported interim results for a Phase III study for its metastatic non-small cell lung cancer (mNSCLC) treatment that did not meet a co-primary endpoint goal of progression-free survival. Arcus Biosciences is conducting a similar study, and Wedbush analyst Robert Driscoll believes Roche's data "casts a shadow" on the biotech stock's mNSCLC programs. As such, Driscoll lowered his price target on RCUS by 37% to $42, while maintaining an Outperform (Buy) rating.
This is because the Wedbush analyst is still quite bullish about Arcus Biosciences, as are the majority of Wall Street pros covering the name. RCUS is one of a few healthcare stocks featured here that boasts a consensus Strong Buy recommendation – and with high conviction. In addition, the average price target among the 11 analysts tracking Arcus that are covered by S&P Global Market Intelligence is $57.20, more than triple the stock's current price.
Arcus Biosciences does have a few things in its pipeline for investors to have on their radar, including two monoclonal antibody therapies – domvanalimab (AB154) and AB308 – it is currently developing in partnership with Gilead Sciences (GILD).
The company's Q1 2022 report said it was optimistic about a mid-stage study that uses domvanalimab in combination with Arcus' zimberelimab to treat mNSCLC, based on preliminary data. It is still enrolling patients and expects to provide another update in the second half of this year.
RCUS also noted in its first-quarter results that it is "well-positioned to advance its programs," with its $1.3 billion in cash and cash equivalents and funding that runs into 2026. The stock soared 11.7% the day after the quarterly update was released.
It's important that investors proceed with caution on RCUS, though. Small-cap stocks, particularly those in the biotech industry, are known for their volatility.
Integer Holdings
- Market value: $2.6 billion
- Dividend yield: N/A
- Analysts' rating: 4 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.00 (Buy)
Although Integer Holdings (ITGR, $77.09) operates two businesses, most of its revenue is from manufacturing medical devices and components for other companies. It also gets a small amount of sales from producing batteries for nonmedical applications. ITGR's medical business accounted for 97% of its $310.9 million in sales in the latest quarter.
The Texas-based company reported its Q1 2022 results in late April. Integer had some supply-chain and COVID-related staffing issues that negatively impacted sales. However, it still managed to increase revenue in the quarter by 7% year-over-year to $310.9 million, 97% of which came from its medical unit. Integer's adjusted net income decreased 18.8% during the quarter to $26.1 million.
The company expects to continue to grow through acquisitions. Most recently, it acquired Ireland-based Aran Biomedical in early April for $126.4 million, and ITGR will throw in an additional $10.5 million if Aran meets certain 2022 revenue growth targets. Aran provides medical device original equipment manufacturers (OEMs) with the technology to improve their manufacturing processes. It generated sales of $17.9 million in 2021, almost double what it did in 2020.
For all of 2022, Integer expects sales to grow 12% at the midpoint of its guidance to at least $1.36 billion, with operating income forecast to arrive between $203 million and $215 million.
Argus Research analyst Kristina Rugger has a Buy rating on the healthcare stock, with a price target of $95 – considerably higher than its current share price.
"We believe that ITGR shares are undervalued at current prices," Rugger says. "ITGR is trading at 16 times our 2022 earnings per share estimate, near the low end of the five-year historical range of 15-26. We believe that the company merits a higher valuation based on its strong growth prospects and increasing focus on development-stage services."
Quidel
- Market value: $4.2 billion
- Dividend yield: N/A
- Analysts' rating: 3 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.00 (Buy)
Quidel (QDEL, $100.40) got its start with its first products in 1983. However, it was the company's 1999 launch of its rapid diagnostic test for Influenza A/B that put it on the map. Today, it's best known for its COVID-19 at-home rapid test. QDEL's 2021 revenue was $1.7 billion and is growing rapidly through organic growth and acquisitions.
Its most recent acquisition is easily the company's biggest. In December 2021, Quidel announced it would pay approximately $6 billion for Ortho Clinical Diagnostics Holdings (OCDX), an in vitro diagnostics (IVD) company. On May 16, Quidel's shareholders approved the combination of the two companies.
Under the transaction terms, the two companies will combine, with Ortho shareholders getting $7.14 in cash plus 0.1055 shares of the combined company, while Quidel shareholders will get one share of the new firm for each share of QDEL held. As a result, Quidel shareholders will own 62% of the combined company once the deal is closed, while Ortho's shareholders will possess 38%.
The two companies had a collective trailing 12-month pro forma revenue of $3.9 billion at the end of September 2021. Post-COVID, the combined company expects to grow sales by 9%-11% annually over the long haul with almost $200 million in annual cost and revenue synergies.
Raymond James analyst Andrew Cooper rates QDEL a Strong Buy with a target price of $136, considerably higher than where shares are currently trading. With the Ortho acquisition, Quidel becomes the world's seventh-largest IVD pure-play behind some very large healthcare stocks such as Abbott Laboratories (ABT) and Roche Holding (RHBBY).
Plus, QDEL trades at 12.3x its 2023 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). However, the company's target price is 15x EBITDA, so there's room for some nice multiple expansion.
