This hasn’t been a great year for healthcare stocks. The Dow Jones U.S. Health Care Index is down 4% on the year compared to a 14% gain in the S&P 500 index. In many ways healthcare stocks have been suffering the hangover effects of the Covid-19 pandemic when many pharmaceutical companies and healthcare providers saw their share prices more than triple in only a few years.
While the performance in 2023 has been subpar, that could soon change with momentum and sentiment swinging back in favor of medical companies. With winter coming and a potential resurgence of both Covid-19 and influenza, healthcare stocks could once again be at the forefront of investors’ minds.
Lower interest rates in the months ahead and a broadening of this year’s market rally beyond mega-cap tech names and companies involved in artificial intelligence (AI) could also help. Here are seven healthcare stocks that can cure a lackluster portfolio.
Johnson & Johnson (JNJ)
Healthcare giant Johnson & Johnson (NYSE:JNJ) has just issued third-quarter financial results that beat Wall Street forecasts on both the top and bottom lines. The company also raised its forward guidance as sales of its medical devices and pharmaceutical products strengthen. The Q3 print marks JNJ’s first quarterly results since it spun-off its consumer health unit into a new publicly traded company called Kenvue (NYSE:KVUE) in August of this year.
For Q3, Johnson & Johnson reported earnings per share (EPS) of $2.66 versus $2.52 that had been expected by analysts. Revenue in the July through September quarter came in at $21.35 billion compared to $21.04 billion that was forecast on Wall Street. The company said that its sales during Q3 grew 6.8% from a year earlier. The drug maker also lifted its full-year guidance, saying it now expects 2023 sales of $83.6 billion to $84 billion, and EPS of $10.07 to $10.13.
There continues to be some anxiety over the thousands of lawsuits claiming that Johnson & Johnson’s talc-based products were contaminated with asbestos and caused certain types of cancers. But those products, including the company’s popular baby powder, are now part of Kenvue.
JNJ stock has declined 8% over the last 12 months and now trades at just 11 times forward earnings with a dividend that yields 3.10%. The valuation looks good at these levels.
Bristol-Myers Squibb (BMY)
Pharmaceutical giant Bristol-Myers Squibb (NYSE:BMY) is acquiring Mirati Therapeutics (NYSE:MRTX), which specializes in cancer medications, in a deal valued at $5.8 billion. Bristol-Myers Squibb has offered to pay $58 per Mirati share in an all-cash deal, as well as a non-tradeable contingent value right worth what could be $12 a share in cash for each Mirati share. Bristol-Myers said the takeover will boost its revenue by offsetting upcoming competition from generic versions of its best-selling prescription drugs.
The Mirati Therapeutics deal comes just over a year after Bristol-Myers Squibb acquired small-cap cancer biotech firm Turning Point. The company is clearly pushing to become a leading player in cancer treatments worldwide, which could be a long-term positive for BMY stock. The Mirati acquisition is subject to regulatory approvals and a closing date for the takeover has not been announced. But many analysts say they expect it to proceed as planned.
Bristol-Myers Squibb’s stock has declined 20% over the last 12 months.
Pfizer (PFE)
Investors looking for a truly beaten down healthcare stock to buy on the cheap should cast their gaze towards pharmaceutical maker Pfizer (NYSE:PFE). The company’s stock has been brutalized this year and is now down nearly 40% since January.
The latest blow to the share price came after Pfizer executives lowered the company’s full-year earnings and revenue guidance, citing global demand weakness for its Covid-19 vaccines and other products.
Pfizer said it now expects sales of $58 billion to $61 billion, down from previous guidance of $67 billion to $70 billion. The company said that it has cut its full-year forecast “solely due to Covid products.” Pfizer said it expects revenue from its Covid-19 pill Paxlovid to be about $7 billion lower than previously forecast due to the return of unused doses by the U.S. government. At the same time, the company says sales of its Covid-19 vaccine, Comirnaty, will be $2 billion less than previously forecast due to a drop in vaccination rates worldwide.
While the near-term story for Pfizer remains challenged, investors who buy now could be rewarded when the narrative shifts away from the Covid-19 medications and PFE stock eventually reverses higher.
Walgreens (WBA)
Retail pharmaceutical chain Walgreens Boots Alliance (NASDAQ:WBA) is another healthcare stock that has tumbled this year, having fallen 41% over the last 10 months.
However, there is optimism that veteran healthcare executive Tim Wentworth can turn the company and its share price around as Walgreens new CEO. The former CEO of the largest U.S. pharmacy benefits management company, Express Scripts, Wentworth is coming out of retirement to execute an aggressive turnaround plan at Walgreens.
The need for a turnaround comes as Walgreens struggles with numerous challenges. Recent efforts aimed at becoming a provider of healthcare services as well as a retail pharmacy have not gone as hoped. The company is also saddled with more than $35 billion of debt after taking a majority stake in primary care provider VillageMD, and acquiring specialty pharmacy provider Shields Health and homecare company CareCentrix. Walgreens has also seen its revenue slump due to a fall in demand for Covid-19 vaccines and tests.
It now falls to Tim Wentworth to right the ship at the pharmacy chain.
Procter & Gamble (PG)
While not known as a pure play healthcare company, consumer goods giant Procter & Gamble (NYSE:PG) makes many personal healthcare products that are bestsellers, including the Metamucil fiber supplement, Clearblue pregnancy test, Pepto Bismol upset stomach relief and Vicks vapor rub. The healthcare products are a big part of Procter & Gamble’s business and have helped the company report strong financial results in what continues to be a challenging operating environment.
The company just issued a Q3 print that beat Wall Street forecasts on the top and bottom lines. The maker of Tide laundry detergent reported EPS of $1.83 versus $1.72 that had been expected among analysts. Revenue totaled $21.87 billion compared to $21.58 billion that had been anticipated. Revenue was up 6% year-over-year.
The strong print comes despite the company’s overall sales volumes continuing to decline, with consumers seeking out cheaper generic alternatives to many of its products as inflation remains elevated.
Still, Procter & Gamble said that its sales got a boost in the latest quarter from another 7% across-the-board price increase. PG stock has gained 16% over the last 12 months and is up 70% over five years.
McKesson (MCK)
McKesson (NYSE:MCK) took a knock recently on news that famed investor Warren Buffett had sold his entire position in the drug distributor.
While no reason was given for Buffett dumping the stock, the sale looks like it might have been premature. Since the sale was disclosed at the end of August, the company’s share price has gained 10%, bringing its year-to-date advance to 22%. Over the last five years, McKesson’s stock has grown 245%.
McKesson delivers medicines to pharmacies and hospitals across the U.S. and Canada, and it is today the ninth-largest American company as measured by annual revenues. Analysts continue to like this healthcare name and see an upcoming catalyst from delivering new weight loss medications that are coming onto the market, such as Ozempic and Mounjaro. The company is also likely to get a seasonal boost from transporting both influenza and Covid-19 medications ahead of the winter.
Many investors, including Buffett for awhile, like that McKesson’s business has a wide moat around it. The company is a specialty logistics firm and its business is not easy to replicate given that it involves the safe and secure handling of medications, many of which have to be kept at set temperatures and in special containers during transport.
Eli Lilly (LLY)
Lastly, we come to pharmaceutical company Eli Lilly (NYSE:LLY), which is riding high on the massive expectations surrounding its diabetes and weight-loss drug Mounjaro. The drug hasn’t even been approved for treating weight loss yet, but last quarter it racked up sales of nearly $1 billion based on doctors prescribing it to people off-label.
The hype surrounding Mounjaro, which some people are calling a miracle drug, has driven LLY stock 80% higher over the last 12 months, brining its five-year gains to 443%.
With regulatory approval from the U.S. Food and Drug Administration (FDA) expected imminently, Eli Lilly shuffled its executive ranks, naming a new head of its weight-loss division as part of a series of changes before Mounjaro becomes widely available in what is expected to be the next blockbuster prescription medication. Patrik Jonsson, the president of Lilly USA, is taking on additional responsibilities for the company’s diabetes and weight-loss medication starting on Jan. 1. Eli Lilly is also working on a new weight-loss pill called Orforglipron.
On the date of publication, Joel Baglole held a long position in LLY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
