The demand for healthcare services is consistently high, driven by an aging population, increasing prevalence of chronic diseases, and advances in medical technology.
Amid this backdrop, investors could consider buying fundamentally strong healthcare stocks such as UnitedHealth Group Incorporated (UNH), Johnson & Johnson (JNJ), and AbbVie Inc. (ABBV), with strong profit margins. Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the healthcare industry’s prospects.
The healthcare industry benefits from a consistent demand for medications and treatments driven by the rising incidence of chronic diseases and an aging population.
This steady demand enables healthcare providers to maintain strong profit margins by charging premium prices for their services and products, making the industry stable, non-cyclical, and well-supported in its growth. The U.S. pharmaceutical market is projected to reach $760 million by 2030, growing at a CAGR of 5.5%.
Moreover, the U.S. healthcare industry is supported by a multi-layered insurance system, including private insurers, Medicare, and Medicaid, which provide a steady stream of revenue for providers by ensuring a constant flow of reimbursement for services rendered. The U.S. health and medical insurance market is estimated to reach $2.01 trillion by 2029, exhibiting a CAGR of over 6%.
Furthermore, government regulations, subsidies, and funding programs have ensured that healthcare providers have access to the resources needed to expand their operations and invest in new technologies like AI, IoT, and big data analytics. The growing demand for tailored treatments to improve clinical efficacy fuels the demand for personalized and precision medicine.
Considering these conducive trends, let’s examine the fundamentals of the three healthcare stock picks.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company in the United States. The company has four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.
UNH’s trailing-12-month asset turnover ratio of 1.34x is 228.7% higher than the industry average of 0.41x. Its trailing-12-month EBIT margin and EBITDA margin of 8.49% and 9.22% are 381.3% and 59.6% higher than the industry averages of 1.76% and 5.78%, respectively.
UNH’s total revenues for the fiscal first quarter that ended March 31, 2024, amounted to $99.80 billion, up 8.6% year-over-year. Its cash and cash equivalents at the end of the period came in at $28.41 billion. The company’s adjusted net earnings attributable to UNH common shareholders stood at $6.43 billion and $6.91 per share, up 8.9% and 10.4% from the prior-year quarter, respectively.
For the quarter ending June 30, 2024, UNH’s revenue and EPS are expected to increase 6.4% and 9% year-over-year to $98.83 billion and $6.69, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 1.2% over the past year to close the last trading session at $482.59.
UNH’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
UNH has a B grade for Stability. It is ranked #6 out of 11 stocks in the A-rated Medical - Health Insurance industry. Click here to see UNH’s Growth, Value, Momentum, Sentiment, and Quality ratings.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine and MedTech.
On June 21, 2024, JNJ announced that it completed the acquisition of Proteologix, Inc., a privately held biotechnology company, for $850 million. This acquisition will provide JNJ with other bispecific antibody programs with applications across various diseases, boosting its capabilities to create novel bispecific programs.
On June 7, 2024, JNJ’s DePuy Synthes received FDA clearance for using the VELYS Robotic-Assist Solution in Unilateral Knee Arthroplasty following its successful application in Total Knee Arthroplasty, which has involved over 55,000 procedures. The technology aids surgeons in preserving soft tissues, predicting joint stability, and improving knee function.
JNJ’s trailing-12-month CAPEX/Sales of 5.79% is 61.8% higher than the industry average of 3.58%. Likewise, its trailing-12-month EBIT margin and levered FCF margin of 27.53% and 28.37% are considerably higher than the industry averages of 1.76% and 1.31%, respectively.
For the first quarter that ended March 31, 2024, JNJ’s sales to customers and gross profit stood at $21.38 billion and $14.87 billion, up 2.3% and 4.7% year-over-year, respectively. For the same quarter, its adjusted net earnings and adjusted EPS increased 3.8% and 12.4% from the year-ago quarter to $6.58 billion and $2.71, respectively.
Street expects JNJ’s EPS for the quarter ending December 31, 2024, to increase 10.1% year-over-year to $2.52. Its revenue for the quarter ending September 30, 2024, is expected to rise 5.2% year-over-year to $22.45 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained marginally intraday to close the last trading session at $148.75.
JNJ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. It is ranked #12 out of 154 stocks in the Medical - Pharmaceuticals industry. Get JNJ’s Growth, Momentum, and Sentiment ratings here.
AbbVie Inc. (ABBV)
ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers Humira, Skyrizi, Rinvoq, Imbruvica, Epkinly, Elahere, and Venclexta/Venclyxto.
On June 18, 2024, ABBV announced that it received FDA approval for SKYRIZI for adults with moderately to severely active ulcerative colitis. This makes it the first IL-23-specific inhibitor approved for both moderate to severe ulcerative colitis and moderate to severe Crohn's disease.
On June 13, 2024, ABBV and FutureGen Biopharmaceutical Co., Ltd. announced a license agreement to develop FG-M701, a next-generation TL1A antibody currently in preclinical development for treating IBD. Under the agreement, ABBV received an exclusive global license to develop, manufacture, and commercialize FG-M701.
ABBV’s trailing-12-month gross profit margin of 69.17% is 21.4% higher than the industry average of 56.99%. Similarly, its trailing-12-month EBIT margin and levered FCF margin of 32.11% and 43.40% are considerably higher than the industry averages of 1.76% and 1.31%, respectively.
ABBV’s net revenues for the fiscal first quarter that ended March 31, 2024, increased marginally year-over-year to $12.31 billion. Its operating earnings rose marginally over the prior-year quarter to $2.80 billion. In addition, its adjusted earnings after tax stood at $4.12 billion. Also, its adjusted EPS came in at $2.31.
Analysts expect ABBV’s revenue and EPS for the quarter ending June 30, 2024, to increase 1.1% and 4.9% year-over-year to $14.02 billion and $3.05, respectively. The company surpassed Street revenue estimates in each of the trailing four quarters. Over the past year, the stock has gained 24.5%, closing the last trading session at $170.39.
ABBV’s POWR Ratings reflect its robust prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ABBV has a B grade for Growth, Value, Stability, Sentiment, and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #5. Click here for the additional POWR Rating of ABBV (Momentum).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
UNH shares were trading at $487.96 per share on Monday afternoon, up $5.37 (+1.11%). Year-to-date, UNH has declined -6.55%, versus a 14.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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