Stock market volatility has picked up in 2015, with investors concerned about slowing corporate earnings and global risks in markets from Europe to China.
But if you’re looking for stocks that are more immune than others to broader market declines, one sector of the market stands above the rest.
There are few certainties in life, but growing old and needing more care as you age is one of them. Between the demographic shift in America with aging baby boomers to the proliferation of high-tech medical technologies in emerging markets, there is a real secular growth story for healthcare stocks that can’t be stopped — no matter what the headlines.
And if you know where to look, you’ll find not only decent growth and stability, but significant dividends and long-term income potential, too.
So what healthcare stocks stand out as the best low-risk investments for 2015? Here are seven:
Healthcare Stocks: Johnson & Johnson (JNJ)
Market Cap: $289.8 billion
Dividend Yield: 2.8%
12-Month Returns: 6% vs. 9% for the S&P 500
We’ll start with a boring old standby before we get to the smaller, more exciting plays on this list.
But before you write off Johnson & Johnson (JNJ) simply because it’s an old company you’re already familiar with, remember there’s a reason this company has been around for almost 130 years — and why Warren Buffett has some $33 million invested via Berkshire Hathaway Inc. (BRK.A, BRK.B).
For starters, remember that JNJ is a hybrid healthcare and consumer staples play thanks to popular brands including Band-Aid, Tylenol and even Splenda. That makes this megacap pretty darn bulletproof.
The dividends are also worth remembering. JNJ stock has increased its dividend at least once annually for 52 years. And despite these increases, its current dividend is only about half of projected earnings, so there is even more room for increases down the road.
Yes, J&J kicked this week off on a sour note, dropping 3% on Tuesday after reporting fourth-quarter and full-year 2014 sales declines. But this is hardly a JNJ-specific problem — a strong U.S. dollar is expected to weigh on multinationals across the board this earnings season — nor is it an issue that will stick around in perpetuity.
Meanwhile, with the decline, Johnson & Johnson now looks fairly priced at about 16.5 times 2015 earnings — in line with the broader S&P 500.
And if you’re worried about stability in JNJ, consider that this company is one of just four players with a AAA credit rating, boasts more than $33 billion in cash and investments on the books and clears $17 billion annually in operating cash flow.
If you’re looking for stable, long-term healthcare stocks, there are few options better than Johnson & Johnson stock.
Healthcare Stocks: Stericycle Inc (SRCL)
Market Cap: $11.4 billion
Dividend Yield: None
12-Month Returns: 11%
Let’s jump from an entrenched, sleepy income player to a fast-growing company that doesn’t even pay a dividend yet.
That company is medical waste stock Stericycle Inc (SRCL).
Over the last few decades, regulations and safety guidelines for medical waste have become much more stringent — and that has effectively pushed a lot of smaller players out of the space. At the same time, the need to control infectious diseases and protect public health via sterile medical environments is assuredly never going away.
That leaves Stericycle Inc in a great spot for long-term investors who want to cash in on the dirty business of medical waste.
SRCL has been aggressive with acquisitions to become the largest regulated medical waste company in North America — and is growing fast into regions like Ireland, Spain, Romania, Brazil and Japan.
Medical waste safeguards aren’t going anywhere in developed markets, and neither is Stericycle. But as emerging markets increase healthcare spending and as regulations in Latin America and Eastern Europe evolve, Stericycle is in a great position for growth.
Stericycle reports earnings in early February and is expected to announce $2.6 billion in revenue — up about from fiscal 2013, and nearly double revenue of about $1.4 billion in 2010. As for more recent comparisons, both sales and earnings should be up over 20% from the prior fiscal year. That shows the growth path this company is on.
And while there’s no dividend yet, the future is very bright for SRCL no matter what the market throws investors’ way in 2015.
Healthcare Stocks: Teva Pharmaceuticals Industries Ltd (ADR) (TEVA)
Market Cap: $55.3 billion
Dividend Yield: 2.3%
12-Month Returns: 32%
A hybrid between the brisk growth of Stericycle and the reliability of JNJ is generic drug giant Teva Pharmaceuticals Industries Ltd (ADR) (TEVA). Teva boasts both scale and a decent dividend, as well as a good growth story.
With more than $20 billion in sales annually across all corners of the globe, Teva is the world’s largest manufacturer of generic medications. That means unlike some of the other pharma stocks out there, patent expiration is not an issue … if anything, patent expirations are good because it provides a bigger universe of generic drugs Teva can sell.
The margins, obviously, are less attractive in generics. But if you’re a low-risk investor, it’s more important to find long-term stability for your portfolio than a drugmaker with high-margin medications it is about to see go off-patent.
As for the growth side of the business, Teva is indeed developing its own branded drugs as well — and is a big player in emerging markets as it takes its generic drug portfolio to places like South America and India, where an increasing standard of living means more money for people to spend on better care and prescription drugs. Consider that last quarter, its “specialty medicine” division increased revenues in markets outside of the U.S. and Europe from $103 million to $176 million — a 70% year-over-year jump!
With a 2.2% dividend yield, a dominant share of the global generics market and a plan to cash in on emerging markets, TEVA stock seems like a very solid buy no matter what happens in 2015.
Healthcare Stocks: HCP, Inc. (HCP)
Market Cap: $22 billion
Dividend Yield: 4.5%
12-Month Returns: 25%
I mentioned HCP, Inc. (HCP) a few months back as one of my “7 Sure-Thing Stocks” that could hang tough in any market, and the REIT has proven that is the case with significant outperformance in the last few months even as Wall Street has gotten rocky.
The reason? Well, as a real estate investment trust focused on senior housing, HCP is cashing in on the demographic shift in America caused by the aging boomer population. On top of that, as an REIT there’s a big mandate for dividends.
HCP stock has a beta of just under 0.6, meaning it won’t double your money in short order. However, if you’re looking for stability in a tough market, then this is a great place to stash your cash.
To top it off, HCP in November reported strong earnings that beat expectations on both sales, profits and guidance — showing that there is momentum in the short and long terms for this senior housing player.
Healthcare Stocks: Chemed Corporation (CHE)
Market Cap: $1.8 billion
Dividend Yield: 0.9%
12-Month Returns: 31%
If you’d like a little more growth instead of income, then Chemed Corporation (CHE) is a good option among healthcare stocks. Chemed is a leader in home health services, including personal hospice care, and as baby boomers age and seek to receive care at home.
Just like HCP is a demographic play, Chemed is a way to cash in on this shift — but via care at home instead.
Of course, there’s not the reliable rent from real estate to fuel juicy dividends, so the yield is much lower. Furthermore, Chemed is still a small-cap stock, so it’s investing in itself for growth instead of sending a lot of cash back to investors.
But Chemed stock is up 30% in the last 12 months, showing great outperformance even among healthcare stocks.
One weird thing to note is that Chemed also is the parent of RotoRooter — the plumbing company that specializes in helping homeowners remove clogs or tree roots that have grown into water pipes. That part of Chemed still is a little more than half the business.
However, there is big upside — as well as spinoff potential — for Chemed’s home health division known as Vitas. This could deliver returns to shareholders either through continued revenue growth or through a buyout premium.
Healthcare Stocks: HealthSouth Corp (HLS)
Market Cap: $3.6 billion
Dividend Yield: 2%
12-Month Returns: 19%
HealthSouth Corp (HLS) is a rehabilitation company has a rather colorful past, including a massive accounting scandal about a decade ago that nearly led to its bankruptcy. However, the company mended its ways and has been growing briskly since the Great Recession thanks to aging boomers that increasingly need rehab after injuries or surgeries.
Last quarter, HLS posted 6% revenue growth — its latest in a long string of top-line increases — but most importantly has managed to make progress on a number of key fronts. Hospital-related expenses were flat, bad debt was just 1.4% of revenue and price adjustments helped boost revenue figures.
HLS does a lot of business through Medicare, and that makes it highly susceptible to government payout trends. However, the tailwind provided by Obamacare and broader Medicare coverage is sending more “customers” to HealthSouth, and all the metrics are looking healthy.
As for income, HealthSouth doesn’t have a very big dividend history compared to other healthcare stocks — it only started paying shareholders about 18 months ago. But the recent bump in the dividend and the very sustainable payout ratio of just 16% make HLS a dividend growth stock to keep in mind.
Healthcare Stocks: Anthem Inc (ANTM)
Market Cap: $36.8 billion
Dividend Yield: 1.3%
12-Month Returns: 57%
Anthem Inc (ANTM) is a major U.S. insurance carrier, though you probably know it as WellPoint from its prior identity before last year’s rebranding.
The name change seems odd, considering the two companies joined up way back in 2004, then waited a decade to make this move. But it’s important to remember that Anthem was the No. 1 beneficiary from Obamacare enrollments — mostly under the Anthem brand, not WellPoint plans — and consumer branding is increasingly important under the Affordable Care Act.
According to reports, the company had 400,000 new enrollees at the end of Q1 and had said its policies were already running at a profit. That total was estimated to have hit almost 770,000 new enrollments by midyear — far surpassing the company’s targets of 600,000.
This success in winning Obamacare enrollees is surely a sign of growth to come for this insurance giant. And bigger-picture, ANTM was already the second-largest health insurer in the U.S. before starting to suck up new enrollees.
Also, despite a strong run in the last year, WellPoint Inc. trades for just 14.3 times forward earnings — cheaper than the market at large, and at worst a fair price for a company that is still growing strong.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.