The healthcare sector will be one area of secular growth over the next decade. Several demand drivers will benefit the best healthcare stocks to buy across the entire value chain.
First, let’s highlight the major healthcare tailwinds starting with an aging population. The baby boomer generation (20% of the U.S. population) is transitioning into older age. This shift will create a surging demand for healthcare services and products such as insurance, pharmaceuticals, medical devices and hospitals.
Indeed, estimates point to spending growth over the coming decade. In the U.S., the Centers for Medicare & Medicaid Services estimates national health expenditure growth of 5.6% annually between 2023 and 2032. Even internationally in OECD countries, healthcare spending as a percentage of GDP will rise from 8.8% to 10.2% by 2030.
In addition to older populations requiring more healthcare services, the growth of a wealthy middle class in emerging markets will spur demand. Based on the factors mentioned above, the following three best healthcare stocks to buy will continue to profit.
UnitedHealth (UNH)
UnitedHealth (NYSE:UNH) is one of the largest managed care organizations in the U.S. and also delivers value-based care through Optum. Over the past five years, UNH stock has traded at an average trailing-twelve-month non-GAAP price-to-earnings of 21.6. As of this writing, it’s valued at 19.1 times trailing earnings and even cheaper at 17.7 times forward EPS.
In 2024, the stock has underperformed for several reasons. Humana (NYSE:HUM), a competitor, reported a sharp rise in Medicare Advantage costs. To make matters worse, Change Healthcare, its revenue and payment cycle management unit, suffered a cyberattack that hampered operations. These two factors, plus the usual political risk in an election year, have impeded the stock.
However, these problems are short-term; the market has overreacted. First, regarding rising costs, Humana offered lower prices than UnitedHealth in 2023, which was an underwriting mistake. Moreover, if rising Medicare costs persist, the insurer could increase prices on its annual contracts. Secondly, the cyber breach was resolved and operations resumed. Thirdly, socialized medicine is a long shot with no clear majority in Congress.
With these risks tempered, the bullish case is clear-cut. UnitedHealth has grown EPS by 17% annually over the past decade. Now, it’s in bargain territory due to investor fear. It’s one of the best healthcare stocks to buy since it will profit from healthcare spending growth.
Halozyme Therapeutics (HALO)
On June 6, Halozyme Therapeutics (NASDAQ:HALO) hit a 52-week high after rallying 11%. This move was on the back of a guidance lift by management after an E.U. patent win. Considering the upbeat outlook by management, this is one of the best healthcare stocks to buy.
This biopharmaceutical company is on solid footing after announcing an E.U. patent win for its Enhanze drug delivery technology. The patent win will delay royalty declines related to sales of cancer therapy Darzalex in Europe. Notably, the new patent expires in March 2029, extending its life by five more years than the market expected.
Following these updates, management updated guidance for fiscal year 2024 and its five-year outlook. For 2024, they expect total revenue between $935 million and $1.015 billion. This revenue range represents a 13% to 22% growth rate. Also, based on the updated non-GAAP diluted EPS guidance of $3.65 to $4.05, HALO stock is now priced at 13 times forward earnings.
Moreover, management raised its compounded annual growth rate for revenues for 2023-2028 from 14% to 16%. Even better, non-GAAP diluted EPS will grow at a 23% CAGR over the same period. With this growth rate and a $750 million share buyback announced in February, HALO stock deserves a higher multiple.
Biogen (BIIB)
The U.S. Food and Drug Administration’s approval (FDA) of Biogen’s (NASDAQ:BIIB) Leqembi for treating Alzheimer’s was the catalyst needed to kickstart growth. However, a botched launch of the drug led to severe challenges for the company. Leqembi closed 2023 with very minimal sales, highlighting the extent of the damage.
Nevertheless, after a more than 20% drop over the past year, this biotech stock has become too cheap to ignore. At 15 times forward earnings, investors are preparing for a worst-case scenario. But Leqembi holds promise and could catapult this company back into growth mode.
Already, green shots are starting to emerge. Recently, Q1 of 2024 results revealed that the uptake of Leqembi accelerated, with the number of patients on the drug increasing by 250%. As a result, revenues for the drug nearly tripled quarter-over-quarter. Its Friedreich’s ataxia drug, Skyclarys, is off to an impressive start, garnering $78 million in global revenues.
Besides the innovation in Alzheimer’s and other rare diseases, management has focused on cost savings. Through the Fit for Growth program, they have targeted $800 million in net cost savings by the end of 2025. At current prices, Biogen is one of the best healthcare stocks to buy considering the potential of its new drugs and its cost-cutting initiatives.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.