The COVID-19 pandemic proved the extraordinary capacity of the healthcare sector to create and market vaccines within a year of the pandemic’s outbreak. Mass vaccinations are now helping the economy reopen much sooner than expected. And because the healthcare sector is usually relatively stable, it’s no wonder investors are piling into healthcare stocks to protect themselves from market volatility. Investor’s interest in healthcare stocks is evidenced by Vanguard Health Care Index Fund ETF Shares’ (VHT) 5.4% gains over the past month compared to the SPDR S&P 500 ETF Trust’s (SPY) 3.8% returns.
The significant gains by healthcare stocks have also been helping broader stock market indexes hover near their all-time highs lately. Also, patients are now expected to reschedule their deferred hospital visits as the fear of the spread of the virus diminishes. This suggests a forthcoming revenue boost to the healthcare sector. Healthcare spending is also expected to increase in the coming months to prevent such a deadly public health crisis in the future. According to a Centers for Medicare & Medicaid Services report, national health spending is expected to hit $6.2 trillion by 2028.
With these factors in mind, we think it could be wise to bet on the shares of established healthcare companies Johnson & Johnson (JNJ), UnitedHealth Group Incorporated (UNH), AbbVie Inc. (ABBV), and Novartis AG (NVS). These companies have significant market dominance and are introducing new products at a rapid pace.
Johnson & Johnson (JNJ)
One of the top players in the healthcare space, JNJ researches, develops, manufactures and sells a range of products in the healthcare field worldwide. It operates through three segments: Consumer Health, Pharmaceutical, and Medical Devices. It is known for its baby care products. Also, its single-shot COVID-19 vaccinations resumed on April 23, 2021 following a brief halt order from U.S. Food and Drug Administration (FDA) and Centers for Disease Control (CDC).
The company announced on May 6that the U.S. FDA approved TECNIS Synergy and TECNIS Synergy Toric II IOLs (and that Health Canada also approved TECNIS Synergy Toric II IOLs).The product enables surgeons to address astigmatism at the time of surgery and as such there could be increasing demand for it in the coming months.
JNJ’s Janssen Pharmaceutical Companies announced on April 19that DARZALEX SC was approved by Health Canada, making it the first and only Health Canada-approved treatment for patients with newly diagnosed light chain Amyloidosis (AL). As a result, the company is expected to witness increasing demand for it in the near-term.
The company’s sales increased 7.9% year-over-year to $22.30 billion for its fiscal first quarter, ended March 31. Its adjusted net earnings increased 12.5% year-over-year to $6.90 billion. Also, JNJ’s adjusted EPS increased 12.6% year-over-year to $2.59.
For the current quarter, ending June 30, 2021, analysts expect JNJ’s EPS and revenue to increase 35.3% and 26%, respectively, year-over-year to $2.26 and $22.19. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 18.5% over the past six months and closed Friday’s trading session at $168.50.
JNJ’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Stability, Quality, Value, Growth and Sentiment. Within the Medical – Pharmaceuticals industry, JNJ is ranked #1 of 231 stocks.
To see JNJ’s rating for Momentum as well, click here.
UnitedHealth Group Incorporated (UNH)
UNH operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. It offers Medicaid plans, health management services, advisory consulting arrangements and pharmacy care services and programs, among others.
On April 19, the Ohio Department of Medicaid chose UNH to serve individuals covered by Medicaid. The State of Hawaii also selected the company on April 6 to serve its Medicaid beneficiaries. This reflects the increasing demand for UNH’s products and services, which is expected to increase in the coming months owing to its market dominance.
The company’s revenue increased 9% year-over-year to $70.20 billion for the first quarter, ending March 31 Its earnings from operations grew 34.9% year-over-year to $6.70 billion, while its net earnings increased 43.7% year-over-year to $5 billion. The company’s EPS increased 42.7% year-over-year to $5.31.
Analysts expect UNH’s EPS to come in at $4.43 for the quarter ending September 30, 2021, which represents a 26.2% year-over-year increase. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 12.2% year-over-year to $69.70 billion for the current quarter ending June 30. The stock has surged 46.5% over the past year and closed Friday’s trading session at $417.65.
UNH’s POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. It has an A grade for Stability and Sentiment, and a B grade for Value and Quality.
AbbVie Inc. (ABBV)
Research-based biopharmaceutical company ABBV is engaged in the discovery, development, manufacture and sale of a range of pharmaceutical products worldwide. The company’s offering includes HUMIRA, SKYRIZI, RINVOQ, and IMBRUVICA. Its products are focused on treating conditions including chronic autoimmune diseases in rheumatology, gastroenterology and dermatology, and oncology including blood cancers, among others.
The company received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) for VENCLYXTO on April 23. It is used as a combination regimen for adult patients with newly diagnosed acute myeloid leukemia who are ineligible for intensive chemotherapy. This is expected to provide new therapeutic options for patients with this devastating disease and thereby increase the company’s sales.
ABBV launched SkinMedica Neck Correct Cream on April 1, 2021. It is the first product from its professional-grade skincare line formulated to address the specific biology of the skin on the neck and décolleté area. Many people are experiencing neck problems because of spending a lot of time sitting during remote work. Since this work-from-home trend is expected to continue even after the pandemic, the demand for this product could increase considerably.
The company’s adjusted net revenue increased 50.1% year-over-year to $12.90 billion for the first quarter, ended March 31, 2020. Its operating earnings grew 13.9% year-over-year to $4.10 billion, while its net earnings increased 18.1% year-over-year to $3.50 billion. The company’s adjusted EPS increased 21.9% year-over-year to $2.95.
For the current quarter ending June 30, analysts expect ABBV’s EPS and revenue to increase 31.6% and 35%, respectively, year-over-year to $3.08 and $13.61 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 37.4% over the past year and closed Friday’s trading session at $115.75.
It’s no surprise that ABBV has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Value, Growth, Sentiment and Quality.
Click here to see ABBV’s rating for Momentum and Stability as well. ABBV is ranked #3 in the Medical – Pharmaceuticals industry.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments: Innovative Medicines and Sandoz. It offers prescription medicines for patients and healthcare providers, active ingredients and finished dosage forms of small molecule pharmaceuticals and many other medicinal products.
The company announced on March 30 that the European Commission has approved Kesimpta for the treatment of relapsing forms of multiple sclerosis (RMS) in adults with active disease defined by clinical or imaging features. Its powerful efficacy along with a favorable safety profile could make it a first-choice treatment, which in turn could drive up the company’s sales.
NVS’ net sales from the Innovative medicines segment increased 3.6% year-over-year to $10.10 million for its fiscal year 2021 first quarter, ended March 31. Its core operating income from the same segment increased 1.6% year-over-year to $3.67 billion. The company’s operating income from the Sandoz segment came in at $312 million in the quarter compared to an operating loss of $45 million in the prior-year period.
For the quarter ending June 30, analysts expect NVS’ EPS to come in at $1.54, which represents a 13.2% year-over-year increase. The company’s revenue is expected to increase 6.6% year-over-year to $51.87 billion in fiscal 2021. The stock has gained 6.1% over the past nine months and closed Friday’s trading session at $87.96.
NVS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Stability, and a B grade for Value and Quality.
We have also graded NVS for Momentum, Growth and Sentiment. Click here to access all of NVS’ ratings. NVS is ranked #7 in the Medical – Pharmaceuticals industry.
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JNJ shares were trading at $170.69 per share on Monday afternoon, up $2.19 (+1.30%). Year-to-date, JNJ has gained 9.13%, versus a 13.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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