These healthcare stocks to buy should have dramatic upside in coming months and years
It’s a great time to be looking at healthcare stocks to buy now.
According to research from BlackRock, U.S. healthcare stocks have outperformed the overall stock market by an average of 10% over the past seven recessions. Given high interest rates, inflation and the possibility of an economic slowdown in coming months, it could be a great time for defensive investment categories such as healthcare.
More broadly, the sector should enjoy several positive factors in coming years. For one, there is demographics. The U.S. (and world) populations are rapidly getting older. This global aging phenomenon should lead to more spending on healthcare and pharmaceutical products.
In addition, there have been all sorts of innovative new healthcare and pharmaceutical products in recent years, such as GLP-1 diabetes management drugs, gene editing and RNA-based therapeutics. This combination of factors makes it a favorable time for these three healthcare stocks to buy now.
Kenvue (KVUE)
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Kenvue (NYSE:KVUE) is a consumer health care company. It came into being in 2022 when health care giant Johnson & Johnson (NYSE:JNJ) decided to turn its consumer health business into a separate company.
J&J spun off Kenvue shares in 2023, and the stock has had an underwhelming debut, falling from $25 to around $20 today.
At first glance, this might make sense. Kenvue’s products are in categories such as skin care, cough cold and allergy, digestive health and smoking cessation among others. These aren’t particularly glamorous businesses, and Kenvue’s slow growth rate is a factor that puts off some investors.
However, with the share price decline, Kenvue stock is now selling for just 16 times forward earnings. That’s a great price for a defensive recession-proof healthcare business such as this one. In addition, KVUE stock offers a solid 3.8% dividend yield.
Medtronic (MDT)
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Medtronic (NYSE:MDT) is one of the world’s largest medical device companies. It has a market capitalization of more than $100 billion and it generates around $32 billion in annual revenues.
Medtronic has historically held a dominant position in the heart devices market. More recently, Medtronic has developed a strong competitive position in insulin pumps, spinal products and chronic pain management devices.
MDT stock has badly underperformed the stock market over the past few years. The medical device industry had a rough go of it during the pandemic as people delayed elective surgeries during that time period. More recently, supply chain disruptions and electronics shortages led to some problems in the production of medical devices.
However, it appears that Medtronic’s downturn should be drawing to a close. The company is going for just 17 times forward earnings, and analysts see the company returning to positive earnings growth in 2025.
Morningstar’s Debbie Wang agrees that Medtronic shares are significantly undervalued. She believes MDT stock is worth $112 compared to today’s current $86 stock price. Wang believes the company’s large size, competitive moat and diversified product line-up make it a long-term winner in the medical devices market.
Pfizer (PFE)
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Pfizer (NYSE:PFE) has its investors feeling blue. The pharma-giant’s stock plunged from a peak of $60 in 2021 to less than half today. Incredibly, Pfizer stock now sells for far less than it did in 2020, before the discovery of Pfizer’s blockbuster COVID-19 vaccine.
Vaccine revenues have plunged from their 2022 peak, there’s no disputing that. However, Pfizer’s revenues are still far larger today than they were prior to 2020. Pfizer has reinvested its profits into its drug pipeline, and the company is larger and more profitable now than before, even as the share price has slumped.
Morningstar’s Damien Conover sees tremendous value in PFE stock; he believes shares are worth $42 each compared to their $29 share price today.
Conover believes that Pfizer has a wide moat, attractive portfolio of drug assets, and that its $4 billion cost-cutting campaign sets the stage for improving profitability going forward. In addition to these other positives, PFE stock also offers a 5.9% dividend yield.
On the date of publication, Ian Bezek held a long position in KVUE, PFE and MDT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
