While politicians tussle over drug prices and the costs of entitlement programs, one thing is beyond dispute; Healthcare is and will remain a growth sector of the U.S. economy. Expect every component of the value chain to expand in the coming months and years; From the patient pool to technological advancements, to the demand for integrity, privacy and transparency of information. Overall, these are good things for healthcare stocks.
As reported by Deloitte’s 2020 Global Health Care Outlook, current and emerging healthcare innovations are in development for cloud computing, 5G network technology, artificial intelligence and even the blockchain.
Meanwhile, areas of emphasis will include mental health (with around 450 million people suffering from a mental-health condition), nontraditional or “smart” health communities (involving “school, work, and community-based health education programs” in concert with “public, nonprofit, and commercial enterprises”), as well as prevention (as many of the top contributors to disease and death are lifestyle-related).
With these challenges come opportunities, as visionary companies — some old, some new to the sector — compete for market share in the global and American healthcare markets.
That said, I present to you three healthcare stocks to start accumulating right now — with a focus on highly liquid, well-known large-caps. This is in anticipation of a sector that’s bound to expand along with the businesses that profit from it. So, let’s dive in.
Healthcare Stocks to Buy: Walgreens (WBA)
With a market share in 2020’s first quarter of approximately 21%, Walgreens (NASDAQ:WBA) is an obvious choice in the drug-store niche. However, the company is making some not-so-obvious strides in streamlining their business and adapting to a digitized world. For instance, the company has already closed 114 of 200 regular Walgreens stores as a cost-cutting measure.
Furthermore, the company is trying out 23 “small stores” with Executive VP and Global CFO James Kehoe calls “encouraging results.” Ambitious and creative initiatives like this enable Walgreens to target cost savings of more than $1.8 billion by fiscal year 2022.
As for digitization, you can hold Walgreens stock knowing that the company is prepared for the future of healthcare. During 2019’s Black Friday weekend, Walgreens.com experienced record-breaking sales — up 45% compared to the same period in 2018. Additionally, the Walgreens app has been downloaded a whopping 60 million times — up 12% from the previous year. And, according to Co-COO Alexander W. Gourlay, the company’s “Save A Trip Refill” program now has 3 million patients signed up. This figure represents an increase of over 25% since last quarter.
WBA stock is trading at a very reasonable price-earnings ratio of around 12.9, and it’s much closer to its 52-week low than its 52-week high of nearly $75. So, I would consider this drug-store giant’s shares a bargain at the current price; Just making it a prime healthcare stock to buy.
Declaring his intention to turn Novartis (NYSE:NVS) into a “launch machine,” CEO Vas Narasimhan is truly preparing to take his company to the next level. He just installed Marie-France Tschudin as Novartis’ new pharma chief, and Tschudin intends to shift the company’s approach from a a simple “transactional” one to a more “value-based approach” in which each potentially life-changing medical solution “gets the access it deserves.”
That said, Narasimhan and Tschudin aren’t just jawboning here. Novartis has recently proven itself to indeed be a “launch machine.” The the U.S. Food and Drug Administration’s approval of Beovu to treat wet age-related macular degeneration is a godsend for its patients.
Additionally, across the pond, the European Commission just approved Mayzent. This drug is a next-generation treatment for adult patients suffering from secondary progressive multiple sclerosis.
Aggressive and resourceful, Novartis is taking the new decade by storm. With this momentum I feel good — no, make that great — about recommending NVS stock, as this drugmaker equally serves the medical community and the company’s shareholders in order to be a great healthcare stock.
In the realm of healthcare providers, Humana (NYSE:HUM) is a known leader. And, with an earnings announcement expected on Feb. 5, HUM stock could get a nice boost in the near term. In terms of positives, the company’s most recent quarterly earnings revealed 10% growth in earnings per share. Additionally, the report showed revenue gains of 14%, and Humana stock’s forward P/E ratio of 19.06 is quite reasonable.
Regarding the company’s long-term prospects, Humana is positioned for growth as America’s aging population will continue to utilize Medicare. The company’s latest 10-Q reveals that Humana has around 4.1 million members enrolled in its individual or group Medicare Advantage plans.
Collectively, Humana controls approximately 18% of the Medicare Advantage market, and as J.P. Morgan’s Gary Taylor observes, around one-third of America’s Medicare enrollees are currently on Medicare Advantage plans. That said, Humana CEO Bruce Broussard expects that portion to be one-half in seven to 10 years.
In my view, the only thing that prevented Humana stock from breaching the $400 level last year was talk of “Medicare for all” among presidential hopefuls. Until these proposals move closer to becoming policy, I’m more than confident in recommending HUM shares as a bullish bet on the continued expansion of America’s imperfect behemoth of a healthcare system.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.