Best Healthcare Stocks To Beat Inflation


Share post:

When your investment portfolio faces inflation, one of the approaches you can take to minimize the impact is to have companies whose value can stand up.

Healthcare, broadly speaking, is an industry that people can’t or won’t easily set aside. Not to say that people don’t try to reduce or even ration out their healthcare expenses. Sadly, the stories of people going without or trying to make a month’s worth of a necessary medicine last longer are common enough. But, for the most part, people have insurance, get treated for illness and take medicines. Care providers need those medicines as well as medical equipment and supplies.

Money is spent regularly. Here’s a graph showing annual per capita spending on pharmaceutical and other medical products.

Or annual health services spending in the U.S.

In 2021, according to the Centers for Medicare & Medicaid Services, total healthcare spending was $4.3 trillion or 18.3% of GDP. That’s $12,914 per person.

Check The details

Healthcare is a strong sector in which to place part of your portfolio, but as with any other area of investment, you have to do your due diligence. You have to take many factors into account, including inflation. Input costs, competition, dependency on Medicare or Medicare reimbursement rates and other factors can reduce the ability of a company to manage inflation itself.

Small biotech, biomedical and pharma companies may seem appealing, but if they are still in the long development phase and don’t have products they can sell, they are at greater mercy to the rising interest rates the Federal Reserve imposes to try controlling inflation. Their cost of capital increases, which affects valuations.

Your best bet might be to look for companies with higher liquidity, steady if not escalating cash flow, and a solid balance sheet. Larger and more established companies tend to have strong revenues and healthy profits. They often pay dividends, which helps offset the impact of inflation.

Here are some companies related to healthcare to consider based on some investment advisor suggestions and Forbes analysis of financial data from S&P Global Market Intelligence. Remember, what works in one person’s portfolio might not in another, so always do your own research and check with your financial advisor before investing.

Mispriced stocks are hiding in plain sight and present great investment opportunities for the remainder of 2023. Forbes’ top investment experts share 7 overlooked stocks in this exclusive report, 7 Best Stocks To Buy For The Second Half of 2023. Click here to download it now.

Abbott Laboratories


Abbott Laboratories has a finger in multiple tasty healthcare pies: diagnostics, medical devices, nutrition and branded generic pharmaceuticals. A strong R&D culture and focus keeps the new products, which generally have higher margins and contributions to the bottom line, going. For example, on the medical device front, the Food and Drug Administration (FDA) approved the company’s Eterna spinal cord stimulation system, “the smallest implantable, rechargeable system currently available to treat chronic pain,” and Navitor, the “latest-generation transcatheter aortic valve implantation (TAVI) system designed to help open a narrowed aortic valve in people with severe aortic stenosis.” Since 2014, after a long lull, Abbott has received an average of 5.2 regulatory product approvals a year. A Wall Street Journal summary of analyst ratings looked at more than 20 ratings with an overweight (meaning stronger investor value) average ranking. The average stock price target was $122.62 while at the time of writing the price was about $108, suggesting significant room to grow. Revenue growth of 2022 over 2021 was 5.9% with a 20.8% profit margin. And ABT has a 1.9% dividend yield.

Amgen isn’t on this list because of explosive growth and big expectations of analysts. At the time of writing, the Wall Street Journal’s average analyst ratings were a hold and the stock price was within about 13% of the median target price. But Amgen is a steady biotech pharmaceutical company with a good slate of products in regulatory review; at the end of 2022, there were 19 drugs in phase I trials, 12 in phase II and 15 in phase III. Since 2019–pre-pandemic–total revenue went from $23.4 billion to $26.3 billion. The lift has been enough to push gross profits $19 billion to $19.9 billion. Net income was down, but still about $6.6 billion and that was after $982 million in losses on one-time sales of investments and assets. Unlevered cash flow was $9.6 billion, in rough keeping with its typical pattern, with a dividend yield of 3.7%.



Jeff Jonas, portfolio manager at Gabelli Funds, which has $29 billion in assets under management, likes this company, “one of three leading drug wholesalers in the United States.” He says that inflation actually becomes a benefit to it because price increases get passed down to customers, which “helps its revenue growth and gross profit dollars.” The graying of America, as the population ages and makes greater use of branded, generic and specialty medications, keeps an increasing stream of business headed the company’s way. “Several recent acquisitions in Europe are also performing well and benefiting from the recent weakening of the U.S. dollar,” Jonas says, and also notes that the company “generates strong cash flow that is being reinvested for growth and used to repurchase stock.” The 1.1% dividend yield isn’t the largest but does help offset some inflation pressures.

AstraZeneca (AZN)

“AstraZeneca is a global pharmaceutical company that develops and sells branded drugs across several major therapeutic classes” and well positioned to beat inflation with both short-term and long-term strong growth, says Mitch Bodenmiller, portfolio manager and research analyst for Buckingham Advisors. The company is geographically diverse with a third of its revenue coming from the U.S., another third in emerging markets, 22% in Europe and 9% in Japan. “AstraZeneca has an industry-leading lineup of pharmaceuticals, with six blockbuster drugs projected to deliver double-digit growth in 2023, as well as a strong pipeline.” Margins should increase in 2023 and 2024, boosting earnings per share and driving returns to shareholders. The company also has a 2.0% dividend yield.

Mispriced stocks are hiding in plain sight and present great investment opportunities for the remainder of 2023. Forbes’ top investment experts share 7 overlooked stocks in this exclusive report, 7 Best Stocks To Buy For The Second Half of 2023. Click here to download it now.

CVS Health


You might know CVS Health from its eponymous 9,000 drug store locations. But that is only part of the company. CVS also has more than 1,100 walk-in clinics, one of the big pharmacy benefits managers with more than 110 million plan members, and a dedicated senior pharmacy care business serving a million patients a year and another 35 million through “traditional, voluntary and consumer-directed health insurance products and related services,” as its most recent annual report says. In 2022 the company did more than $343.3 billion in revenue, a 6.2% jump over 2021. Net income was $12.6 billion. CVS’ compound annual growth rate over five years has been 11.7%. It’s not cheap at a P/E of 23.5, but it also pays a dividend yield of 3.6%.

Elevance (ELV)

Few can afford medical care paid only out of their own pocket, which is why insurance is a cornerstone of the U.S. healthcare market. Elevance is the second largest health insurance company, according to Jonas. “The entire industry has maintained strong underwriting discipline in recent years, pricing firmly and according to cost trends,” he says. “Elevance can thrive in any economy thanks to its diversification across commercial insurance, Medicare and Medicaid. The company has also been building up its health care services unit to expand its offerings, better integrate care and capture a larger portion of revenue dollars.” There is also a 1.4% dividend yield.

Merck (MRK)

The pharmaceuticals sector is a profitable one, with industry pre-tax profits of nearly 29%. But that includes generic drugs. Move to name brands and the profitability increases. “Merck is one of the leading oncology companies in the world, led by its immune-oncology drug Keytruda, which continues to gain market share across a wide range of different cancers,” Jonas says. Data shows that in 2022, after-tax net income was about 24.5% of revenue. The company is working to diversify its business, “recently presenting strong data on a new cholesterol medication,” and through acquisitions has added many more drugs. “Despite increasing pressure from payors and politicians, Merck still retains pricing power and is seeing relatively low inflation in its business.” On top of that MRK has a 2.7% dividend yield.



Allen Bond, managing director and head of research and portfolio manager at Jensen Investment Management, is a fan of Pfizer and thinks shares are undervalued, “thanks in large part to the revenue and cash flow generated by its Covid-19 franchise.” The money from the Covid-19 vaccines has gone to “bolster its drug portfolio and pipeline” with “growth prospects [that] have meaningfully improved in the past two years.” The cash flow accelerated investment in new growth opportunities, “leveraging its expertise in drug development and global sales distribution.” Free cash flow has given Pfizer room to acquire late-stage biopharma companies and extend its pipeline of drugs. “This is a strategy it has already begun to execute, the recent acquisition of Seagen is a good example,” Bond says. “This transaction is consistent with our investment thesis for Pfizer. We also like the stock’s dividend, which in the previous low interest rate environment was attractive.” At time of writing, the dividend yield was a strong 4.2%. “We believe that by 2023, Pfizer will have generated nearly $90 billion in cash flow over three years from which it can invest for future growth,” he continues. We believe this formula will result in long-term business value creation and that patient investors will continue to benefit from owning this quality growth company.”

UnitedHealth Group


UnitedHealth has two business segments: UnitedHealthcare and Optum. The first is big in health insurance in the U.S. and abroad. The second provides pharmacy care services and data, analytics and technology services. The two make up a giant, with 2022 revenues of $324.2 billion—up from $242.2 billion in 2019—and net income of $29.2 billion, as well as levered free cash flow of $22.8 billion and a 1.5% dividend yield. Growth has been strong, as CEO Andrew Witty pointed out in the 2022 fourth-quarter earnings call. Optum Health expects to serve 4 million in 2023, 1.8 million more than when the company entered 2022. They also expect more than 750 community pharmacies, a jump of almost 200 over 2020. On the insurance side, in-home services reduced hospital visits by 15%, helping to contain costs.

Mispriced stocks are hiding in plain sight and present great investment opportunities for the remainder of 2023. Forbes’ top investment experts share 7 overlooked stocks in this exclusive report, 7 Best Stocks To Buy For The Second Half of 2023. Click here to download it now.

Source link

Nicole Lambert
Nicole Lambert
Nicole Lamber is a news writer for LinkDaddy News. She writes about arts, entertainment, lifestyle, and home news. Nicole has been a journalist for years and loves to write about what's going on in the world.

Recent posts

Related articles