The healthcare sector has always been a good place to look for stocks to buy for the long term. After all, demographics alone will support growth for decades as nearly 80 million baby boomers retire. And now that the Affordable Care Act is the law of the land, healthcare companies are benefiting from millions of new customers who were previously uninsured.
Of course, some stocks to buy always have better growth or risk-reward prospects than others, and that goes even for defensive stocks such as those found in the healthcare sector.
For starters, it’s not like the potential of healthcare stocks has been kept secret over the last few years. The case for finding healthcare stocks to buy because of aging has been an investing theme for a decade or more. And as for the Affordable Care Act, plenty of healthcare stocks started to rise well in advance of its ultimate implementation.
That said, healthcare spending is rising at such as sharp and steady clip that investors need to be on the lookout for healthcare stocks to buy that have plenty more upside ahead. The percentage of money Americans spend on healthcare sets a new record high every year. In 1990, 15% of all consumer spending went to healthcare. By 2009, that figured topped 20% and has inched up every year since.
The healthcare sector is wide and deep with stocks to buy, ranging from medical device manufacturers to real estate investment trusts (REITs), but they all should benefit from record consumer spending on healthcare.
Here are five stocks to buy to participate in this powerful trend:
5 Healthcare Stocks to Buy: Celgene Corporation (CELG)
Like much of the biotech and pharma industry, Celgene Corporation (NASDAQ:CELG) is struggling with best-selling drugs going off patent. The difference with Celgene is that the company has a promising pipeline that hasn’t been fully appreciated by the market.
For example, Abraxane, for breast cancer, has shown excellent results as a treatment for pre-surgery breast cancer patients. Additionally, Celgene issued encouraging guidance surrounding its Otezla launch.
The basics and valuation look good too. Analysts like CELG’s record of net income growth, earnings per share growth and top-line growth, as well as a high return on equity (33%). CELG trades at less than 19 times forward earnings with a 25% long-term growth forecast. But the S&P 500 trades at more than 19 times earnings despite at having a growth forecast of less than 8%.
5 Healthcare Stocks to Buy: Health Care REIT, Inc. (HCN)
Health Care REIT, Inc. (NYSE:HCN) operates senior living facilities, hospitals and medical offices, among other properties, and offers a combination of fat dividend and solid growth. Indeed, HCN is working hard to capture its share — and then some — of the growing healthcare pie.
An aggressive strategy of acquisitions and investments has HCN on a market-beating growth trajectory. In the last quarter alone, HCN completed $1.8 billion of gross investments, led by its $950 million acquisition of HealthLease Properties Real Estate Investment Trust. Indeed, a total of $1.5 billion went to acquisitions and joint ventures, $89 million was invested in development funding, $170 million was put into loans and $4 million went to capital improvements.
Be forewarned that HCN just announced a public offering valued at around $1.5 billion to help pay for all this growth, and that will be dilutive to EPS.
5 Healthcare Stocks to Buy: Medtronic PLC (MDT)
Medtronic PLC (NYSE:MDT) is one of the leading medical equipment manufacturers in the world, a position which leaves it well-placed to cash in on an increasingly infirm generation.
What’s encouraging about MDT’s future is that it’s leaving no option unexplored to drive sales and profits. The muc- publicized acquisition of Covidien get most of the attention, but MDT is doing much more than that. Indeed, MDT is penetrating into emerging markets, expanding its and cutting costs to boost revenue, as well as margins, which have been a concern.
And as for grabbing more of consumer spending on healthcare, a key area of business for MDT is its cardiac and vascular group. New products like the CorveValve heart-valve-replacement hardware and SureScan pacemakers were recently given regulatory approval.
With heart disease being the leading cause of death in the U.S., MDT should have ample growth ahead.
5 Healthcare Stocks to Buy: HCA Holdings Inc (HCA)
Few stocks are as sensitive to the political fight over Obamacare than HCA Holdings Inc (NYSE:HCA). This hospital operator is on the front lines of healthcare spending. After all, admitting uninsured patients is bad business for a hospital company.
Amazingly, even after running up nearly 50% over the last year, HCA still looks like a good value. Indeed, it trades at just 13 times forward. True, that’s a bit pricier than the stock’s own five-year average, but it’s far cheaper than the S&P 500 despite having a much higher growth rate.
The big headwind for HCA is the current case before the Supreme Court regarding federal healthcare subsidies, but the stock still has a bright outlook even if the ruling goes against Obamacare. After all, federal healthcare accounts for only about a third of operating profit.
Even after stripping out that contribution, HCA remains on a growth track.
5 Healthcare Stocks to Buy: Anthem Inc (ANTM)
Formerly known as Wellpoint before a recent rebranding, Anthem Inc (NYSE:ANTM) is one of the best insurers to play on soaring spending for healthcare. That’s because it was the No. 1 beneficiary from Obamacare enrollments.
Shares in ANTM are up 16% for the year-to-date on strong growth and optimism that the Supreme Court will rule in its industry’s favor. (A ruling is expected in June.) And yet even after putting up such strong gains, ANTM fetches less than 14 times forward earnings. Although that’s higher than its own five-year average, it’s cheaper than the broader market or ANTM’s peers.
Furthermore, Obamacare gives it the growth to justify a higher multiple.
Heck, revenue is forecast to grow 10% in the current quarter alone. For the full year, the top-line is projected to expand more than 8%.
That’s a fountain of revenue growth when compared with the broader market.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
