If you’ve ever been on the receiving end of a hospital bill then it’s no secret that the healthcare sector is lucrative. To be precise, the Centers for Medicare and Medicaid Services expect U.S. healthcare spending to reach $6.2 trillion by 2028. Additionally, in the wake of the COVID-19 pandemic, there is a renewed interest in public health. All of this is good news for healthcare stock investors. In the U.S., the healthcare sector is comprised of companies that manufacture and sell drugs and medical equipment. It also includes hospitals, healthcare providers, and health insurance companies. With that in mind, let’s examine four of the best healthcare sector stocks to buy.
Top Healthcare Sector Stocks to Invest In
No. 4 Moderna (Nasdaq: MRNA)
Most investors recognize Moderna as one of the best healthcare sector stocks to buy thanks to its COVID-19 vaccine. Moderna was one of just three companies to offer a COVID-19 vaccine, alongside Pfizer and Johnson & Johnson. However, there’s something unique about Moderna that separates it from the other two. To develop its COVID-19 vaccine, Moderna used an entirely new process. It leveraged the use of mRNA to “teach” human cells to fight COVID-19. Moderna is currently one of the only companies using this type of strategy.
COVID-19 was a massive breakthrough for Moderna. Up until then, it had no real evidence that its system could work. It also had lots of expenses with very little revenue. But, post vaccine approval, Moderna brought in nearly $19 billion in 2021. Even more importantly, Moderna gained proof of concept.
Now that Moderna has used mRNA to treat one disease, it can surely expand. In fact, it currently has 31 new vaccines in development. If just a fraction of these new vaccines are approved, it could dramatically increase Moderna’s bottom line.
Moderna recently reported Q1 2022 revenue of $6.07 billion and a net income of $3.66 billion. These numbers were up 213% and 199% YoY respectively. Almost all of this income still came from its COVID-19 vaccine. But, watch out for this to change in the coming years.
Moderna just recently went public in 2019 and its stock is up 773% since then. But, it’s down 30% so far this year.
No. 3 UnitedHealth Group (NYSE: UNH)
Most investors consider UnitedHealth Group one of the best healthcare sector stocks to buy. This is because UnitedHealth Group is a goliath in the industry. It is currently the nation’s largest health insurance provider. In 2021, it reported annual revenue of $287.6 billion and a net income of $17.29 billion. This was enough for Fortune to rank it as the 5th largest company in America.
UnitedHealth Group also owns Optum, a pharmacy benefit manager and healthcare provider. Optum represents a growth opportunity for UnitedHealth Group. In Q1, Optum reported revenue of $43.3 billion. Notably, its revenue per customer increased 33% YoY. It also raised its guidance for the rest of the year and now expects to serve 600,000 customers (up from an earlier projection of 500,000).
Overall, UnitedHealth Group reported Q1 2022 revenue of $80.1 billion, up 14% YoY. Total net income was $17.29 billion, up 12.2% YoY. Additionally, UnitedHealth Group has a dividend yield of 1.33%. This stock is down 1% so far this year but is up 166% over the past five years.
No. 2 Embecta Corp (Nasdaq: EMBC)
Embecta was just listed on the Nasdaq in 2022. For this reason, it is one of the newer healthcare sector stocks to buy. But, in reality, Embecta has been around for over 100 years. It’s just that it was recently spun off from Becton Dickinson. Now, Embecta is a standalone company looking to grow rapidly in the diabetes space.
Despite being a new standalone company, Embecta is already a leading producer of diabetes injection devices. This includes pen needles and syringes. However, the most exciting part of Embecta is the market that it operates.
Unfortunately, diabetes is a rapidly growing problem around the world. One in ten adults suffers from diabetes. And, once a diagnosis is confirmed, they must pay for treatment for years. Sometimes, patients might be paying for the rest of their life. This is why about 10% ($966 billion) of global healthcare spending is attributed to diabetes. Diabetes spending is up 315% over the past 15 years.
As a standalone company, Embecta is in a much better position to expand its business and grow its market share. It should be able to innovate and bring new products to market more quickly.
Ebmecta recently reported Q1 revenue of $274.5 million, down 3% YoY. It also reported a net income of $79.6 million, down 26% YoY. Its stock is down 42% since going public in 2022.
No. 1 Align Technology (Nasdaq: ALGN)
Align Technology is an orthodontics company that owns Invisalign, iTero and Exocad. It is also a great example of a healthcare sector stock that has been beaten up badly by macroeconomic factors. Mainly, this means COVID-19. Align Technology relies on Mexico, China and Israel to manufacture its aligners and scanners. In particular, China has still been closed down for most of 2022 due to the pandemic. In other words, Align Technology’s supply chains have been in disarray. On top of that, Align sells roughly half of its aligners overseas. According to its CEO, unfavorable foreign exchange rates have had a negative impact on revenues, margins and EPS.
Notably, none of Align’s struggles were due to a lack of demand, tough competition, or any long-term variables. Despite all this turbulence, Align Technology still reported Q1 revenue of $973.22 million, which was up 8.77% YoY. This is impressive growth all things considered. It is also compared to an incredibly successful Q1 2021. With that said, net income was down 33% YoY to $134.4 million.
In general, the fact that Align could squeak out Q1 revenue growth is a sign of the resiliency of its business. It also still has time to end the year with strong annual growth. Right now, Align Technology’s stock is down over 60% from its all-time high. But, as the global landscape clears up, look out for it to bounce back strong.
I hope that you’ve found this article on the best healthcare sector stocks to be valuable! Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.
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A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.