Healthcare stocks have tremendous growth potential but also face challenges from government policies, especially over the next few years. Still, the healthcare sector is growing faster than the broader economy, and investors have many exciting ways to participate.
What are Healthcare Stocks?
Healthcare stocks are publicly listed companies active in the healthcare sector. They cover a broad range of subsectors and companies, including pharmaceuticals, medical devices, biotech, healthcare providers, health insurers, and pharmacy benefit managers (PBMs).
Why Should You Consider Investing in Healthcare Stocks?
Healthcare stocks are an excellent defensive investment to protect a portfolio against economic uncertainty, recessions, and, to a lesser extent, inflation. Consumers with prescription medication or medical needs cannot alter their treatment due to economic swings, making revenue streams for healthcare stocks more stable.
Here are a few things to consider when evaluating healthcare stocks:
- Invest in healthcare stocks with a healthy pipeline of medications and treatments in Phase I, Phase II, and Phase III trials.
- Evaluate the current products and how they address the needs of the current healthcare situation.
- Ensure a healthy dividend yield to compensate for the added political and regulatory risks.
- Analyze the balance sheet and focus on free cash flow and overall debt levels.
What are the Downsides of Healthcare Stocks?
Investing in healthcare stocks requires considering political and regulatory risks. They are unexpected developments that can swiftly reverse momentum and cause double-digit selloffs. High research and development costs, expiring patents, and stiff competition are additional downsides of healthcare stocks.
Here is a shortlist of currently attractive healthcare stocks to consider:
- Pfizer (PFE)
- Vertex Pharmaceuticals (VRTX)
- Fresenius Medical Care (FMS)
- Elevance Health (ELV)
- BioMarin Pharmaceutical (BMRN)
- Merck & Co (MRK)
- Cencora (COR)
Update on My Previous Best Healthcare Stocks to Buy Now
In our previous installment, I highlighted the upside potential of Pfizer and Vertex Pharmaceuticals.
Pfizer (PFE) - A long position in PFE between $23.91 and $25.52
PFE is up nearly 2% since my recommendation, and bullish catalysts dominate. So, I will hold on to my position.
Vertex Pharmaceuticals (VRTX) - A long position in VRTX between $91.59 and $95.29
VRTX advanced over 2%, and I maintain my long position, as the bullish narrative remains intact.
Fresenius Medical Care Fundamental Analysis
Fresenius Medical Care (FMS) provides kidney dialysis services primarily for patients with end-stage renal disease (ESRD). It maintains a network of over 4,170 outpatient dialysis centers, treating over 345,000 patients. It also operates 42 production sites, and Fresenius Medical Care is also a component of the DAX 40.
So, why am I bullish on FMS after its post-earnings correction?
I am bullish on Fresenius Medical Care for its unique position in the healthcare industry, as it provides a life-saving service that is not affected by economic conditions. Valuations are low, and FMS maintains a double-digit earnings-per-share growth rate. It uses insights into caregiver and patient needs to develop better technology to treat ESRD patients, ensuring its products, which it also sells to competitors, are at the cutting edge of medical technology. Its advancements into at-home treatments are an underappreciated bullish catalyst.
Fresenius Medical Care Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 16.85 makes FMS an inexpensive stock. By comparison, the P/E ratio for the S&P 500 is 30.61.
The average analyst price target for FMS is $29.36. This suggests moderate upside potential with limited downside risk.
Fresenius Medical Care Technical Analysis
Fresenius Medical Care Price Chart
- The FMS D1 chart shows price action at its descending 38.2% Fibonacci Retracement Fan level with a pending breakout.
- It also shows Fresenius Medical Care breaking out above its horizontal support zone.
- The Bull Bear Power Indicator is bullish with an ascending trendline.
My Call on Fresenius Medical Care
I am taking a long position in FMS between $23.50 and $24.20. I am buying into its unique positioning as a life-saving healthcare company and its advancements into at-home treatments.
- FMS Entry Level: Between $23.50 and $24.20
- FMS Take Profit: Between 429.36 and $30.24
- FMS Stop Loss: Between $21.40 and $21.84
- Risk/Reward Ratio: 2.79
Elevance Health Fundamental Analysis
Elevance Health (ELV) is a health insurance company serving more than 46 million medical members. It is the exclusive licensee of the Blue Cross Blue Shield brand in 14 states. ELV is also a component of the S&P 500 Index.
So, why am I bullish on Elevance Health following its post-earnings slide?
Reports indicating the White House may unveil a health policy framework that includes a 2-year extension of Affordable Care Act (ACA) premium subsidies boosted Elevance Health from its post-earnings slide. I remain bullish on its overall network, as it serves approximately one in three individuals in states where it operates, making it the second-largest insurer, lagging only national insurer UnitedHealth, despite a limited geographic footprint.
Elevance Health Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 13.80 makes ELV an inexpensive stock. By comparison, the P/E ratio for the S&P 500 is 30.61.
The average analyst price target for Elevance Health is $387.16. It suggests good upside potential with reasonable downside risks.
Elevance Health Technical Analysis
Elevance Health Price Chart
- The ELV D1 chart shows price action breaking out above its ascending Fibonacci Retracement Fan.
- It also shows Elevance Health inside a bullish price channel.
- The Bull Bear Power Indicator is bullish with an ascending trendline.
My Call on Elevance Health
I am taking a long position in Elevance Health between $332.21 and $341.89. I am bullish on its ambitious 12% annualized EPS growth and its value-based, risk-sharing relationships to decrease overall healthcare costs.
- ELV Entry Level: Between $332.21 and $341.89
- ELV Take Profit: Between $375.55 and $387.16
- ELV Stop Loss: Between $314.08 and $323.79
- Risk/Reward Ratio: 2.39
Ready to trade our analysis of the best pharma stocks? Here is our list of the best stock brokers worth checking out