2 best healthcare stocks to buy right now
BMillionaires Jamie Dimon and Elon Musk have both recently expressed concern about the possibility of a recession. It is therefore the ideal time for investors to prepare by protecting their portfolios against the recession.
The healthcare sector tends to hold up better than the economy as a whole in times of recession. This is due to the essential nature of the services provided by the sector. Here are two major healthcare stocks that seem like strong buys right now.
1. CVS Health
SVC Health (NYSE: CVS) is a leading pharmacy and health insurance chain. The company’s Aetna health insurance subsidiary had 24.5 million medical members in the first quarter of 2022, up 3.8% from the prior year period. And the pharmacy segment filled the equivalent of 567 million monthly prescriptions in the first quarter, equivalent to a 5.8% year-over-year growth rate.
CVS Health has tailwinds that should continue to drive medical enrollments and prescriptions filled for years to come. As the cost of health care rises, more and more people will turn to health insurers to assume the risks on their behalf. This will result in growth in the amount of health insurance premiums collected each year by CVS Health.
A key metric for health insurers is the medical benefit ratio, which divides a company’s medical claims costs into its premiums. And a ratio below 100% indicates profitability. The company’s medical benefit ratio of 83.5% in the first quarter suggests that increased demand for health insurance will pay off and drive earnings growth. The growing prevalence of chronic diseases is also expected to drive prescription fill volumes and company revenue higher over time.
These factors explain why analysts expect CVS Health to generate annual earnings growth of 5.7% over the next five years. And the stock offers investors a seemingly safe 2.3% dividend yield, which is much higher than the S&P500 return of 1.5% of the index. With a dividend payout rate expected to be 26.5% in 2022, CVS Health is expected to pay out single-digit annual dividend increases in years to come.
CVS Health’s strong fundamentals also appear to be unrecognized by the market. This is supported by the fact that the forward price/earnings (P/E) ratio of 11.2 is well below the healthcare industry average of 16. This is why I think CVS Health could fit in in a portfolio of dividend-growing stocks.
Few companies have such a positive impact on global health as medical device maker pure-play Medtronic (NYSE:MDT). Indeed, the company’s countless medical devices improved the lives of 75 million patients worldwide last year.
With the world’s population growing and aging, it is almost certain that Medtronic will positively impact the health of more patients each year. This is especially true given that the company conducted more than 300 clinical trials and received more than 200 regulatory approvals in its prior fiscal year for its medical devices, according to chief executive Geoff Martha.
Due to favorable demographics and Medtronic’s exceptional product portfolio, analysts expect annual earnings growth of 12.7% over the next five years. The market-beating dividend yield of 2.8% also looks sustainable. Indeed, Medtronic’s dividend payout ratio will be approximately 49% for the current fiscal year, which should allow for generous dividend growth going forward.
The stock appears to be fairly valued at the current share price of $96. Medtronic’s leading P/E ratio of 17.3 is only slightly above the healthcare industry average of 16. If any stock deserves a premium over its peers, it would be this dividend aristocrat. Simply put, Medtronic is a safe stock to buy in a bear market or recession.
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Kody Kester holds positions at CVS Health and Medtronic. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.