Finding winners on Wall Street is never easy. But hunting for the best stocks to buy now, in this capricious, up-and-down market, is especially difficult. After both the Dow Jones Industrial Average and the S&P 500 kicked off 2016 with their worst starts ever, some investors may be questioning their confidence in the stock market altogether.
On the other hand, the recent dip also provides a buying opportunity — especially for high-quality large-cap stocks that investors can rely on. And when you think “reliable” in the stock market, the healthcare sector should instantly come to mind.
That’s because, as baby boomers age, the “graying” of America will alter the investment landscape, as older Americans spend more and more money on pharmaceuticals and medical treatments.
Taking the state of the markets, as well as this unalterable demographic trend into account, I’ve constructed a list of the 10 best healthcare stocks to buy now. The vast majority of them pay dividends, some approaching nearly 6%, and all of them are primed to be long-term winners.
Without further ado, here are the healthcare sector’s best stocks to buy today:
Healthcare’s Best Stocks to Buy Now, #10: Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) should be a part of every individual investor’s diversified portfolio.
The healthcare behemoth (JNJ is the largest healthcare company in the world by market cap) fresh off an earnings beat on Tuesday, where cost cuts, lower taxes and a strong drug portfolio helped the company beat fourth-quarter estimates, and project full-year 2016 earnings that also exceeded analyst expectations.
JNJ stock earned $1.44 per share in the fourth quarter, topping the consensus $1.42 estimate. For 2016, it expects earnings per share between $6.43 and $6.58, far exceeding Wall Street’s $6.38 forecast.
JNJ itself is diversified, producing everything from consumer goods to drugs to medical devices. It also pays a solid, sustainable dividend that now rests at 3%, and that dividend payout has been rising for 53 consecutive years — since the days of the Kennedy presidency.
Healthcare’s Best Stocks to Buy Now, #9: Pfizer Inc. (PFE)
Pfizer (PFE) is yet another massive pharmaceutical company that’s a no-brainer for the typical individual investor. Boasting a 3.9% dividend yield, it provides a better income stream than JNJ stock … but that comes at a price. Instead of 53 consecutive years of dividend growth, PFE boasts only six — the company did cut back its dividend in the midst of the 2008-09 financial crisis.
That said, Pfizer’s bold decision to buy Allergan (AGN) for $160 billion, while not the most popular with Washington lawmakers, also helps make it one of the best stocks to buy for long-term investors, who will see Pfizer’s tax bill fall dramatically.
In buying Allergan, whose blockbuster drug is the anti-wrinkle treatment Botox, PFE will be able to pay taxes in Ireland — where Allergan is headquartered — at a far lower rate than it pays in the U.S.
Healthcare’s Best Stocks to Buy Now, #8: Merck (MRK)
I recently penned an article called “10 Best Stocks to Buy for the Turnaround,” premised around the idea that the market had been hammered to start the year, for no other reason than we’re worried about China and oil is falling. Basically, I believe a comeback of some sorts is in the cards.
Merck (MRK), Pfizer, and Johnson & Johnson all made that list.
That’s because I believe we’ll see a flight to quality as investors cautiously dip their toes back in the market. Merck is certainly quality, and it currently pays a 3.6% dividend yield. It trades for just 13 times earnings, making it a value play at current levels.
Plus, its pipeline is solid. Notably, Keytruda, the world’s first anti-PD1 therapy, is already approved for treating melanoma and non-small cell lung cancer, giving it huge potential.
Healthcare’s Best Stocks to Buy Now, #7: Gilead Sciences, Inc. (GILD)
There’s no other way to put it: Gilead Sciences (GILD) trades at an insane discount to its peers. At a price-to-earnings ratio of just 8.1 and a forward P/E of 7.3, it’s hard not to like Gilead here.
Sure, Gilead’s dividend yield of 1.9% isn’t terribly impressive, but this is a stock you buy for the potential capital appreciation, not the dividend.
Kiplinger recently called GILD stock “remarkably cheap for a biotechnology leader.” And although there are some legitimate concerns about greater competition in the Hepatitis C space, as soon as its multiple starts expanding again, we should see GILD shares take off — even if earnings going forward are a little depressed.
Healthcare’s Best Stocks to Buy Now, #6: Amgen, Inc. (AMGN)
It’s also hard not to like Amgen (AMGN), the large-cap California biotech trading at just more than 14 times forward earnings. The company has been raising its dividend for five consecutive years, and now sports a 2.6% dividend yield.
InvestorPlace’s Chris Tyler, who encouraged investors to buy Amgen stock on its last serious pullback in November, had this to say:
“AMGN holds the largest pipeline of late-stage trial drugs among biotech companies. Further, the company is a growing presence in the biosimilars market, which is estimated to balloon to $30 billion a year in the next decade.”
Makes sense to me!
Healthcare’s Best Stocks to Buy Now, #5: UnitedHealth Group Inc (UNH)
Healthcare plan provider UnitedHealth Group (UNH) is another large, quality company trading on the cheap and paying a dividend.
What can I say? There are loads of great healthcare stocks to buy at these prices.
UNH trades for just 12.9 times forward earnings, and its 1.8% dividend, while modest, has been growing for six straight years.
UnitedHealth also is coming off an impressive Q4 earnings report in which the company beat on both EPS and revenue, and reaffirmed its 2016 projections.
Yes, UNH is facing some serious losses from Affordable Care Act-related accounts, but UNH is looking to lighten that load by pulling back on those plans.
Healthcare’s Best Stocks to Buy Now, #4: Sanofi (SNY)
Sanofi (SNY) is a worldwide pharmaceutical powerhouse, and, like pretty much all the others on this list, it should benefit immensely from the “graying” of America.
The fact that Sanofi is also trying desperately to regain its swagger in the diabetes market is bullish, as it attempts to replace the revenue it lost from Lantus — it still accounts for 16% of sales — when it went off-patent in the U.S. in May.
Looking super-long-term, Sanofi plans on bringing 18 new products to market by 2020, six of which it feels will generate annual sales between 12 billion and 14 billion euros by 2025.
Healthcare’s Best Stocks to Buy Now, #3: GlaxoSmithKline plc (ADR) (GSK)
GlaxoSmithKline (GSK) isn’t just one of the best healthcare stocks to buy today — it’s one of the best dividend stocks to buy today.
Sporting a 5.7% yield, GSK is an income investor’s fantasy, and it boasts the highest dividend yield on today’s list.
Investors may be down on GSK stock, which trades at just 7 times earnings, because its revenue has been declining for the past four years after its asthma treatment Advair lost patent protection.
Like Sanofi, GSK has ambitious plans for its pipeline. Via Keith Speights:
“The company could file for regulatory approval for as many as 20 new drugs in the next four years. Seven of those drugs are in late-stage development and could potentially hit the market before 2020.”
Healthcare’s Best Stocks to Buy Now, #2: Abbott Laboratories (ABT)
From branded generics to medical devices, nutritionals and diagnostics, Abbott Laboratories (ABT) does it all. Although its exposure to overseas markets makes it vulnerable to currency headwinds, that’s not exactly unusual.
Indeed, Abbott’s diversification makes it a prime addition to most investor’s portfolios, and Merrill Lynch thinks ABT is one of the better large-cap pharmaceuticals you can buy today. Wells Fargo also gives shares an “outperform” rating.
The stock recently got hit hard on disappointing earnings and forward guidance, but that did help drop the company’s P/E to below 13 while knocking the dividend yield to near 3% — and that’s a payout that has grown for 44 consecutive years.
Healthcare’s Best Stocks to Buy Now, #1: Biogen Inc (BIIB)
Last but not least, Biogen (BIIB) looks like a stock to buy at these levels. Before Wednesday’s earnings announcement, BIIB traded at around $260 per share — just a few bucks above its 52-week low, and substantially below its 52-week high at $480.
Shares are off about 25% in the past year. That said, the main reason for this selloff was a one-day, 20% slide that resulted from Biogen slashing estimates for its blockbuster multiple sclerosis drug, Tecfidera.
But at about 15 times 2016 earnings estimates, BIIB stock looks like a steal.
Biogen looks like an especially good pickup after Wednesday morning’s earnings report: BIIB shot 8% higher after the company posted a blowout quarter, beating both top- and bottom-line estimates. EPS came in at $4.50, much higher than the $4.04 consensus, while revenue of $2.8 billion was also higher than the $2.7 billion that analysts expected.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
