If you think Obamacare has changed the face of healthcare, you haven’t seen anything yet.
The seven top-rated healthcare stocks here — UnitedHealth Group (UNH), Aetna (AET), Anthem (ANTM), Eli Lilly (LLY), Regeneron (REGN), Stryker (SYK) and Incyte (INCY) — are already dominating their sectors, and they will continue their leadership well into the next decade.
This is the kind of trend that real long-term growth investors want to see.
With roughly 76 million baby boomers in the U.S. today, healthcare customers are getting collectively older. And by 2029 the U.S. Census Bureau estimates that 61 million will be around when the youngest boomers hit 65. In other words, about 20% of the U.S. population will be over the age of 65.
The aging demographic completely changes the dynamic of how healthcare will be delivered, paid for and accessed. That means massive changes between now and then for those paying for services, developing treatments and providing care.
Below are some of the top companies that are leading the way.
Top Healthcare Stocks: UnitedHealth Group (UNH)
United HealthGroup (UNH) is about a vertically integrated as you can get. It operates everything from healthcare insurers to healthcare intelligence and data management companies, as well as serving the state and federal governments with Medicare and Medicaid.
These latter two categories will be rising significantly as baby boomers hit the golden years. And UNH is already nailing it: Earnings from operations were up 33% year-over-year, and margins increased 20% year-over-year.
Even the recent market turmoil didn’t rattle UNH. The stock is up 17% year to date and a whopping 35% in the past year. Those are tech stock kind of returns investors love to see, underscoring the market’s view of this sector’s massive opportunity.
There seemed to be every reason to sell UNH hard when the market tanked, but it has remained resilient. That’s a good sign that this sector is a safe harbor for further market volatility.
Top Healthcare Stocks: Aetna (AET)
Aetna (AET) is a unique healthcare pick because it’s a diversified insurance company with a specific focus in the healthcare sector.
This is a sword that cuts both ways. On the one hand, it helps diversify the company’s growth and gives it some stability as the healthcare landscape sorts itself out. Because insurers hold all the cash they receive as premiums in safe, easy-to-liquidate investments in case they need to pay claims, they usually buy large sums of U.S. Treasuries.
So, when the U.S. raises rates AET is going to make out like a bandit. And focused healthcare insurers won’t get the same kind of bump.
But being diversified means it doesn’t have all its focus on healthcare, so AET doesn’t get the big long-term growth from that sector. That is what the $37 billion merger with Humana is supposed to ameliorate. However, there may be more complications than originally thought regarding the deal.
But for now, AET is going gangbusters — up 32% year-to-date and 40% for the past 12 months.
Top Healthcare Stocks: Anthem (ANTM)
Anthem (ANTM) has the same basic story as UNH. But ANTM is more focused on managed care plans and less diversified in the healthcare management space.
That focus hasn’t hampered its growth, however. The stock is up 20% in the past year and 16% year-to-date. Those number aren’t as big as UNH or AET, but the stock has had some troubles since its announced merger with Cigna.
The American Heart Association has asked the Justice Department to investigate whether the merger between the No. 1 and No. 5 healthcare insurers will significantly affect competition and pricing for hospitals. The AHA claims it would significantly reduce competition in 817 geographic markets, affecting 45 million consumers.
The markets don’t like uncertainty. So, while investors know that ANTM will be fine, they also see better opportunities in the short term.
But this gives smart long-term investors a great buying opportunity. And if you needed any more convincing, consider that ANTM pays out a higher dividend than Apple, with a hefty share buyback to boot.
Top Healthcare Stocks: Eli Lilly (LLY)
Eli Lilly (LLY) is one of the most established pharmaceutical companies in the world. The company was distributing an insulin formulation before WWII. Now its stable of drugs is like a who’s who of common prescriptions for virtually anything that ails you: Cialis, Cymbalta, Methadone, Darvocet, Prozac, Seconal, Keflex … the list goes on.
Eli Lilly is about as rock-solid as they come. Plus, even at current prices, LLY stock throws off a nearly 2.5% dividend; that’s very attractive for a company that has long-term growth written into its DNA.
Right now, LLY has two exciting drugs hitting the market for Type 2 diabetes. According to the online health resource Healthline: “In adults 20 and older, more than one in every 10 people suffers from diabetes, and in seniors (65 and older), that figure rises to more than one in four.”
LLY also had the foresight to have the only Type 2 treatment that also fights cardiovascular disease, as well. It went on sale last year in Europe and the U.S.
And Eli Lilly just received FDA approval on another Type 2 drug that uses the kidneys as opposed to the liver to get rid of excess sugar. It is the fifth collaboration and approval on a Type 2 drug between LLY and Boehringer Ingelheim.
Top Healthcare Stocks: Regeneron (REGN)
Back in 1988, Regeneron (REGN) was founded with the goal of building growth factors for the nervous system. The company was following in the footsteps of Genetech, which was one of the first to build growth factors for cells to develop insulin and other similar agents.
A mere two years later, the most read neurobiology paper of the year was REGN’s Science paper on cloning a novel neurotrophic factor. It wasn’t long before Amgen (AMGN) asked to collaborate on the groundbreaking work.
Regeneron had an ALS drug in trials by 1992, a mere four years after the company was founded. And the company hasn’t looked back.
The real value of REGN stock is in its broadening pipeline. As larger pharmaceutical companies watch their patents expire, smaller firms have the opportunity to get into the market with more targeted and effective therapies. REGN is one of the best disruptive players among healthcare stocks.
Top Healthcare Stocks: Stryker (SYK)
Stryker (SYK) has a bright future ahead of it, as one of the leading equipment and device makers for orthopedic and reconstructive surgery.
It’s no surprise that SYK stock hit an all-time high in mid-August. But it’s also no surprise the stock sold off more than 5% since then.
Still, SYK is in the sweet spot when it comes to the graying of America trend, and that trend is also happening across the Western world. Even in Japan, there are nearly 60,000 centenarians alive today.
The fact is, joints wear out as we get older. Our spines aren’t really optimized for bipedal motion. The longer we live in modern societies, the greater the chances that we’re going to need a new hip or knee or some kind of back surgery.
Now is a good time pick up SYK stock after the recent selloff, back at more reasonable levels. SYK could also be an acquisition play in the near future. Or it might acquire some smaller firms in strategic sectors as well. Either way, now is a great time to get in on the action.
Top Healthcare Stocks: Incyte (INCY)
Incyte (INCY) focuses its attention on rare blood cancers, such as myeloproliferative neoplasms, which affect 300,000 people in the U.S. INCY already has a drug on the market to address this population.
This type of cancer also relates to other blood cancers like leukemia and multiple myeloma, which offers Incyte the opportunity to transition to larger sectors and thus larger potential revenues.
In the meantime, such specialized companies make tempting targets for bigger biotechs and pharmaceutical companies looking to add a strategic niche quickly.
INCY stock is up 161% in the past year and has weathered the correction without missing a beat. That shows some real strength, both fundamentally and technically.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.