The reliable growth of healthcare is something that risk-averse investors can believe in right now, even as Wall Street gives them little else to be hopeful about.
For starters, there is the built-in growth for healthcare investments thanks to the demographic push of aging Baby Boomers who need more care.
There’s also the boon of new “customers” in the U.S. thanks to Obamacare, and continued expansion of modern medicine into emerging markets.
Additionally, there is built-in stability for healthcare stocks because patients will naturally cut back on other discretionary spending before they forgo drugs or therapies that extend their lives and reduce their pain. That means even in a rough macro environment, healthcare stocks will remain pretty firm.
If you’re looking for low-risk investments right now, then, you can’t do much better than healthcare stocks. And here are seven that offer big potential in 2016.
Healthcare Stocks to Buy: AbbVie Inc (ABBV)
AbbVie Inc (NYSE:ABBV) is a biopharmaceutical company that was spun off from Abbott Laboratories (NYSE:ABT) in 2013, with ABT getting the higher-growth research of the legacy portfolio and AbbVie taking the mature business.
That sounds like investors in ABBV are stuck with a dud, on the surface, but the numbers show AbbVie is far from dead.
In fact, ABBV offers passive income growth, as well as a company that has a bright future thanks to immediate growth potential.
For instance, the current yield is over 4% after a 12% dividend bump earlier this year. Furthermore, the payout is up 43% from the 40-cent dividend ABBV shares paid at as recently as the beginning of 2014.
Looking at the growth side now, investors should be encouraged by the fact that AbbVie is projected to see 14% revenue growth this year and another 10% growth in fiscal 2017. Profits are set to soar, too, up 17% this year, according to estimates, and up 19% next.
Throw in the attractive forward price-to-earnings ratio of 9.5, and it’s hard not to like this healthcare play both for stability and for breakout potential in 2016.
Healthcare Stocks to Buy: UnitedHealth Group Inc (UNH)
UnitedHealth Group Inc (NYSE:UNH) is one of the best-performing large-cap stocks year-to-date, with a roughly 9% return since Jan. 1 vs. a flat market.
The reasons are two-fold: as investors look to stable investments in a rocky market, insurer UNH is incredibly attractive. But furthermore, UnitedHealth has a strong outlook for 2016, with a projected 15% growth rate in revenue and a 20% growth rate in profits this fiscal year.
What’s more, in addition to growing its insurance business UNH is increasingly getting into the drug game; a recent deal between its OptumRx unit and Walgreens Boots Alliance Inc (NASDAQ:WBA) will help it compete with pharmacy benefits managers CVS Health Corp (NYSE:CVS) and Express Scripts Holding Company (NYSE:ESRX). That’s increasingly important as UnitedHealth looks to growth avenues beyond simply insurance policies.
Throw in a 1.6% dividend and a reasonable forward P/E of 14.6 and you have a stable and well-priced investment worth your money.
Healthcare Stocks to Buy: Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) has a lot to offer jittery investors in 2016, including a vaunted AAA credit rating from Standard & Poor’s that is shared by just two other U.S. companies — proof-positive of stability in any market.
Valuation-wise, JNJ is also reasonably priced right now at just 15.6 times next year’s earnings.
Hilary Kramer, editor of GameChangers, recently wrote that the consumer health giant is also attractive because of its income potential and current yield of about 2.8%.
“The strong yield is the result of more than 50 straight years of increasing the payout … and that trend is sustainable, too. The stock’s payout ratio is just 53% right now, which is lower than the five-year average,” Kramer wrote.
It’s noteworthy, too, that Johnson & Johnson is actually up by about 4% this year to outperform the market despite some negative publicity that included the approval of a biosimilar arthritis treatment.
The fact that JNJ is moving higher even amid this FDA ruling is a good sign that investors have faith in the company’s overall drug portfolio — as well as the stability of its consumer health business that produces items including Band-Aids and Tylenol.
Healthcare Stocks to Buy: SPDR S&P Biotech ETF (XBI)
The exchange-traded fund SPDR S&P Biotech ETF (NYSEARCA:XBI) is my favorite way to play healthcare because it’s a safer way to play the explosive potential of small development-stage biotechs without the boom and bust that comes from individual stock picks in the space.
This biotech ETF is admittedly smaller than some of the other healthcare funds that are out there, both in its total assets under management and the companies that it invests in. But that’s why investors should like it — because other funds regularly hold big positions in megacap companies like Gilead Sciences (NASDAQ:GILD) that hold big drug portfolios and are relatively mature already.
The XBI that has no more than 2.2% weighting for a single stock right now, and includes more smaller and mid-cap companies than other funds. It also is more diversified, without a bulky investment in just a few positions.
Case in point: Its No. 1 holding right now is Novavax, Inc. (NASDAQ:NVAX) a $1.5 billion biotech that is only 2.12% of the entire portfolio. That’s the kind of company you want, with the kind of diversification you need to stay safe. Get more details here on the official site for XBI.
Healthcare Stocks to Buy: HCP, Inc. (HCP)
HCP, Inc. (NYSE:HCP) is a real estate investment trust that’s a member of the S&P Dividend Aristocrats — meaning it has increased its dividend annually for over 20 years running.
Shares are admittedly down more than 15% year-to-date, but this generous dividend history and a juicy 6.9% yield make the short-term trouble for shares more than worth the trouble.
Moreover, HCP is the kind of company that is literally not at all concerned with the next few months and instead focused on the next few years — even the next few decades. As a company that holds healthcare properties including senior living facilities and medical offices, the reliable rent from its tenants mean reliable dividends and revenue for shareholders to take to the bank.
There admittedly isn’t a lot of growth here, with the top line for HCP forecast to be flat both this year and next. Furthermore, earnings are actually down from 2015. However, the juicy dividends and the potential for long-term returns could make this a nice bargain buy for shareholders with patience.
Healthcare Stocks to Buy: Baxter International Inc (BAX)
Baxter International Inc (NYSE:BAX) is a rock-solid, low-beta healthcare play that may not set the world on fire with parabolic growth, but is a great place to hide out if you’re uncertain about your portfolio right now.
In 2015, Baxter split into two separate companies as its biotech business was spun off as Baxalta Inc (NYSE:BXLT). And while some investors were worried this would undercut the growth potential of the core business of BAX, that hasn’t been the case, as shares have risen 14% in the last six months vs. just 6% for the S&P 500 in the same period.
The only thing the spin-off has done, it seems, is to move the riskiest part of the business off to a separate ticker symbol and made BAX even more bulletproof.
The top line of Baxter admittedly isn’t going anywhere. But earnings are set to grow 9% this fiscal year and keep the company firm in a troubled market.
Healthcare Stocks to Buy: Pfizer Inc. (PFE)
Pfizer Inc. (NYSE:PFE) is another sleepy stock that investors have counted out. However, despite underperforming so far in 2016, PFE is a Big Pharma play that can offer stability and income for investors in an otherwise uncertain environment.
Yes, revenue is challenged for Pfizer considering blockbuster drugs are in decline amid patent expirations, and the strong dollar is creating a headwind overseas to add even more pain. However, Pfizer offers a 4.1% dividend that is very sustainable — even after a recent dividend increase.
And looking forward, its $160 billion merger with Allergan plc (NYSE:AGN) could yield big results down the road in the form of new treatments that replace some of the legacy drugs that are losing patent protection. This combination of stability and income with growth potential makes PFE an interesting play, particularly given its affordable forward P/E of about 12 right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.