Healthcare is a sector that has underperformed the broader stock market this year. The S&P 500 Health Care Sector Index is down over 2.50% year-to-date versus a 17% gain in the benchmark S&P 500 index. The decline has been broad-based as investors focus their capital allocations on high-flying technology stocks at the expense of pharmaceutical companies, medical device manufacturers and health insurers. The decline brought valuations down following the Covid-19 pandemic when some of the best-performing stocks in the world were those of pharma companies and other healthcare companies racing to find a cure to the respiratory disease. That provides investors with a long time horizon, an opportunity to pick up some great healthcare stocks at reasonable, if not cheap, prices right now. Here are the three most undervalued healthcare stocks to buy in September 2023.
Danaher (NYSE:DHR) set September 30 as the date when it will officially spin off its environmental and applied solutions business (water-testing and water-quality unit) called Veralto. The new company will begin publicly trading thereafter. This could prove to be the catalyst that Danaher, primarily a medical device maker, has been waiting for. The company’s stock has been in the doldrums lately after more than a decade of outperforming the broader market. In the last 12 months, DHR stock has declined 12%.
Concerns about breaking up Danaher’s core businesses primarily caused the decline. However, Danaher said it wants to focus on moving forward with its larger medical device and commercial products units. Some analysts say they expect Danaher will be more aggressive with mergers and acquisitions following the Veralto spin-off, which may also be a catalyst for DHR stock. The company continues to post strong earnings, including results for this year’s second quarter that beat Wall Street forecasts.
Healthcare insurer Humana (NYSE:HUM) is another stock down in the dumps lately. Year-to-date, HUM stock decreased 6%. Shares are currently trading at a very reasonable 17 times forward earnings estimates. Humana is not the only health insurer that slipped this year. The company’s chief rival, UnitedHealth Group (NYSE:UNH), saw its stock fall 7% since January. Investors seem concerned about Medicare Advantage cost-trend uncertainty and rising claims from elective surgeries delayed by the pandemic.
There are also worries about the upcoming presidential election cycle, following the adage that investors shouldn’t own healthcare stocks during an election year, as the sector is treated like a political football on the campaign trail. Owing to these factors, analysts at JPMorgan Chase (NYSE:JPM) recently downgraded HUM stock from Overweight to Neutral. JPMorgan also lowered its price target on the stock to $540 per share from $576. Still, long-term Humana remains a leading healthcare stock to own.
Did you know that medical device manufacturer Medtronic (NYSE:MDT) is a dividend aristocrat? The company has raised its quarterly payout to shareholders for 45 consecutive years. And Medtronic has a reputation for hiking its dividend by a fair amount, raising it an average of 16% compounded annually for more than four decades. Currently, MDT stock pays a dividend of 69 cents per share each quarter, giving it a yield of 3.39%. The dividend is just one reason to be bullish on Medtronic.
The company is also seeing strong demand for its medical devices mostly used in heart and gastrointestinal procedures. The growing demand led the company to post better-than-expected second-quarter financial results and raise its profit forecast.
Looking ahead, Medtronic, which makes pacemakers, catheters and other devices, said it now expects its full-year profit in 2023 to be between $5.08 and $5.16 a share, up from a previous range of $5 to $5.10. MDT stock is down 10% over the last 12 months but looks ready for a comeback.
On the date of publication, Joel Baglole held a long position in DHR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.