The healthcare domain emerges as a bastion of persistent growth over the forthcoming decade. Multiple propulsion factors are set to favor the cream of the crop among healthcare equities, spanning the entire value spectrum.
Untapping Boons Driving Healthcare Stocks
One prime driver of the healthcare boom is the aging populace phenomenon. The baby boomer cohort, constituting 20% of the American population, is gracefully transitioning into their golden years. This transition heralds a robust upsurge in the demand for healthcare services and a gamut of products including insurance, pharmaceuticals, medical devices, and hospitals.
Forecasts indeed paint a picture of an escalating expenditure trajectory over the forthcoming decade. The Centers for Medicare & Medicaid Services in the United States predict a 5.6% annual upswing in national health expenditures from 2023 to 2032. Simultaneously, healthcare spending vis-a-vis GDP in OECD countries is poised to climb from 8.8% to 10.2% by the year 2030.
Beyond the escalating healthcare needs of aging societies, the burgeoning affluent middle class in emerging markets is set to stoke the demand further. Riding on these perceptible winds of change, the following trio of top-grade healthcare stocks are seamlessly poised to burgeon.
UnitedHealth (UNH): Navigating the Stock Turbulence
UnitedHealth (NYSE: UNH), a juggernaut in managed care in the U.S., flaunts its value-focused patient care services under Optum’s aegis. Trading at an average non-GAAP price-to-earnings ratio of 21.6 over the past five years, UNH stock currently stands at an attractive 17.7 times forward EPS.
The year 2024 has been a tad tumultuous for the stock. Headwinds include the escalation in Medicare Advantage costs flagged by competitor Humana (NYSE: HUM) and a cyber siege on its revenue and payment cycle management arm, Change Healthcare. In a political maelstrom of an election year, these factors have dampened UNH’s sparkle.
Yet, these setbacks are mere blips on its radar. Humana’s erroneous underpricing in 2023 places it on the back foot in terms of costs. Should the Medicare costs spiral, contractual repricing gives UnitedHealth an upper hand. The cyber snag has been neutralized, and the specter of socialized medicine appears a long shot sans a clear Congressional mandate.
With these clouds parting, the bullish case for UnitedHealth beckons. The stock has posted a 17% annual EPS growth over the past decade and now nestles in the bargain bin, courtesy of transient investor jitters. It stands tall as a stellar healthcare stock pick poised to capitalize on the healthcare expenditure boom.
Halozyme Therapeutics (HALO): Riding the Patent Wave
Halozyme Therapeutics (NASDAQ: HALO) surged to a 52-week zenith on June 6, scaling an 11% rally. This ascendancy was propelled by an elevated guidance from management post an E.U. patent triumph. Bolstered by this optimistic prognosis, this stock ranks among the healthcare zeniths for astute investors.
This bio-pharma entity is sitting pretty post an E.U. patent claim for its Enhanze drug delivery platform. The patent triumph extends the lifeline of royalties from the Darzalex cancer therapy sales in Europe. With the new patent extending till March 2029, five years beyond market expectations, Halozyme promises longevity.
In the wake of these developments, management recalibrated fiscal 2024 outlook and the subsequent five-year vista. Anticipating total revenues ranging from $935 million to $1.015 billion for 2024, a growth rate of 13% to 22 is envisaged. Notably, pegged at 13 times forward earnings, the HALO stock now sparkles with an enhanced charm.
Furthermore, the management’s upward revision of the compound annual revenue growth rate for 2023-2028 from 14% to 16% augurs well. Non-GAAP diluted EPS growth at a 23% CAGR over this period, coupled with the $750 million buyback roll-out in February, propels HALO stock into a higher valuation orbit.
Biogen (BIIB): Pioneering the Healthcare Horizon
The Resurgence of Biogen: A Turnaround Tale in the World of Biotech
An Uphill Battle
The U.S. Food and Drug Administration’s approval (FDA) of Biogen’s (NASDAQ: BIIB) Leqembi for treating Alzheimer’s was the much-needed spark for growth. Unfortunately, a tumultuous launch of the drug resulted in significant setbacks for the company, culminating in dismal sales figures by the end of 2023.
A Silver Lining
However, despite experiencing a more than 20% decline in the past year, this biotech titan has now become a diamond in the rough. With a valuation of 15 times forward earnings, investors are bracing themselves for the worst. Yet, the potential of Leqembi could serve as a springboard to propel the company back into a growth trajectory.
Signs of Recovery
Recent developments are hinting at a revival. The Q1 2024 results underscore a remarkable uptick in Leqembi adoption, witnessing a 250% surge in patient numbers on the drug. Consequently, revenues from the drug nearly tripled in a quarter. Biogen’s Friedreich’s ataxia treatment, Skyclarys, has also made waves, generating $78 million in global sales.
Fueling Growth
Aside from breakthroughs in Alzheimer’s and other rare diseases, the company’s management has diligently focused on cutting costs. The Fit for Growth initiative aims to achieve $800 million in net cost savings by the close of 2025. At its current valuation, Biogen stands out as one of the most promising healthcare stocks, given the potential of its new medications and the efficiency of its cost-saving strategies.
