Even though we all die, about 20% of America’s gross domestic product is devoted to healthcare. About 75% of that is devoted to fighting chronic conditions, like hypertension and diabetes, predictable and treatable conditions that many people resist treatment for until it’s too late. The reason healthcare stocks are so important is that healthcare is that important.
Those treatments have produced miracles. Statins and hypertension drugs mean I have yet to experience the heart problems that killed my father. There are now effective treatments for the diabetes that killed my grandmother. There’s even hope for the dementia that took my mother at age 93.
That’s because, as I wrote in 2019, DNA is slowly becoming akin to a programming language. As with much of what I write about, progress there remains slow. The field remains in its infancy as my son, who recently started his career in it, likes to remind me.
It’s in chronic conditions and drug discovery built on DNA research that you’ll find the biggest profits in healthcare stocks today. You can choose to go directly to dividends, you can “buy the dip” on drug companies or you can invest in the equipment side of research and treatment.
All the companies I’ve selected for this gallery have track records marked by success. They have all delivered in the past for shareholders, although some of these healthcare stocks have had a torrid time of it in 2022.
|TMO||Thermo Fisher Scientific||$534.35|
United HealthGroup (UNH)
United HealthGroup (NYSE:UNH) has used technology acquired through its Optum unit to dominate the health insurance market. It provides the best investor value in the entire health care sector.
The stock has delivered an average 34% capital gain over the last five years, and the dividend has more than doubled. This year it was raised 14% to $1.65 per share each quarter.
Regulators are noticing UNH’s dominance and starting to push back. The $13 billion purchase of data analytics firm Change Healthcare by Optum was halted by the Department of Justice in February. The $5.4 billion deal to buy LHC Group, a home health and hospice company, has also been delayed by the Federal Trade Commission.
The refusals could contain UNH but are unlikely to halt its earnings momentum. Its movement into managed care has been slow, but steady. It will find a way to earn profits there.
No drug company is better at finding potential blockbusters and monetizing them than Pfizer (NYSE:PFE) CEO Albert Bourla.
I called Bourla, a Greek-born veterinarian, my “CEO of the Year” in 2021 for his management of the Covid-19 vaccine developed by BioNTech SE (NASDAQ:BNTX) of Germany. The shot meant Pfizer had $31 billion of cash and securities on its books at the end of 2021.
Pfizer is reinvesting the cash, buying Arena Pharmaceuticals, Biohaven Pharmaceuticals, and ReViral in quick succession. The deals expand its drug pipeline in immuno-inflammatory disease, migraine therapies and vaccines.
Moderna’s MRNA-based Covid-19 vaccine had me calling it “the stock of the decade” by the end of 2020. That’s not just because Covid-19 vaccines were blockbusters. The success brought Moderna cash that lets it pursue other MRNA-based therapies on its own, acquiring rights from partners rather than selling them.
The stock is down 43% this year as investors wonder about its “second act.” I have no doubt that act is coming. The bears have driven the price-to-earnings ratio of Moderna stock to just 4.4. Because Moderna has a method for drug discovery, not just a big drug, I am convinced that second act is coming.
Intuitive Surgical (ISRG)
Intuitive Surgical (NASDAQ:ISRG) has revolutionized how surgery is done with its da Vinci robot. The robot doesn’t replace a surgeon. It lets them work with absolute accuracy, performing more surgeries with more safety than ever before.
The stock has been hit hard in 2022, down 44%, but even with that it has delivered an average capital gain of 19% over the last five years. Sales have nearly doubled, and the company remains in command of its niche. At the end of 2021, it had over $4.2 billion of cash and securities.
Analysts expect the market for robotic surgical equipment to accelerate. While ISRG has entered the fourth stage of fame, as in “get me a young Intuitive Surgical,” it’s still on most analysts’ buy lists.
Like Moderna, Regeneron (NASDAQ:REGN) offers a method for drug discovery, not just new drugs. Methods matter, because without them you’re just an oil wildcatter in 1930s Texas, vulnerable to a single failure.
The company currently has 12 drugs in phase-3 trials, including drugs for macular degeneration, lung cancer, osteoarthritis and COPD. The stock trades at less than 9 times earnings and had $5.7 billion of cash and securities on its books at the end of 2021.
Danaher (NYSE:DHR) is not exclusively a health care company. It’s a conglomerate that owns dozens of companies. Most are in life sciences and diagnostics. But Danaher also owns Pantone, the color company, and Videojet Technologies, which makes industrial printers. After acquisition, its companies continue to operate under their own names.
While Regeneron and Moderna have methods for drug discovery, Danaher has a model for growth. A Danaher business analyzes how customers use what it makes, then expands across that business or value chain.
The result is that Danaher has delivered an average 40% capital gain over the last 5 years and has nearly doubled its dividend. Sales have risen 74%, but net income is up 152%. Its latest acquisition is Aldevron, which makes systems for producing mRNA, plasmids and proteins, which are at the heart of genomic research.
Thermo Fisher Scientific (TMO)
The race is on to understand DNA as we do a programming language. Thermo Fisher (NYSE:TMO) is one of the arms merchants to that race.
Thermo Fisher has several brands, including Applied Biosystems, Invitrogen, Patheon, Unity Lab Services, and PPD, which it bought last year. What ties them together is biochemistry, tests and testing equipment used in labs developing cures.
Thermo Fisher’s sales have doubled since 2017, and profits have nearly tripled. It has delivered capital gains of over 40% per year for the last five years, and the stock pays a small dividend. Even its most bearish analyst doesn’t see it falling much below its current price, and earnings are expected to keep growing.
Thermo Fisher made some huge acquisitions in 2021, led by the $17.4 billion purchase of PPD. But it still had $4.5 billion in cash and securities on its books at the end of the year. As the rest of the biotech equipment sector is squeeze, TMO is ready to pounce.
On the date of publication, Dana Blankenhorn held long positions in MRNA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.