5 Healthcare Stocks To Keep The Winning Streak Alive In 2020
Zacks Investment Research | Dec 18, 2019 07:26AM ET
The year 2019 is nearing an end and the healthcare sector has so far performed quite well, consistent with its winning momentum of the past many years. Rising demand for services and products in this sector aided growth for the year to date and the trend will likely continue with the increasing aging U.S population and the persistent prevalence of lifestyle-related diseases.
The sector also gained traction from the use of AI-based applications along with medical mechatronics and big-data applications. Ramped-up M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, expanding insurance coverage, burgeoning middle class, insatiable demand for new drugs and ever-escalating health care spending have been some of the key catalysts in 2019 and will keep fueling the sector.
Players in the sector have benefited in scale, size and business diversification from mergers and acquisitions, which help drive revenues. The sector, which has always been high on mergers and acquisitions, saw a number of deal wins in 2019 as well, which further consolidated the space.
Some notable mergers completed this year were the mega-merger deal between Bristol-Myers and Celgene (NASDAQ:CELG), acquisition of Loxo Oncology by Eli Lilly and Company (NYSE:LLY), Roche’s buyout of Spark Therapeutics for $4.8 billion and Merck’s integration of Immune Design.
Other announcements include NextGen Healthcare’s (NXGN) takeover of Medfusion, a patient experience platform leader. Notably, the latest declaration was Merck’s acquisition of ArQule, strengthening its supremacy in Oncology.
The decline in corporate tax rate further provided more funds in the hands of already cash-rich companies in the healthcare sector, which have been utilized for further business expansion, innovations and share buybacks.
Despite regulatory hurdles, spiralling medical costs plus growing expenditure of research and development, most companies have been able to maintain their profitability by cost-control measures and raising prices.
Moreover, the defensive nature of the Healthcare sector as compared to others enabled it to withstand an extensively volatile year. Given its cautious nature (as demand for products and services are to a large extent immune to the state of the economy, enabling players to earn revenues even in difficult times), the sector attracts investors, banking on the safety of investments it provides.
In a year’s time, the Health Care Select Sector SPDR fund (XLV), consisting of a portfolio of large-cap healthcare stocks on the S&P 500 Index, has rallied 23.2% compared with the S&P 500 Index's surge of 32%.
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Top Picks
The prospects of healthcare will remain largely bright in 2020, courtesy of the spurt in America’s grey populace. That is why it makes sense for investors to add healthcare stocks to their portfolios next year. However, picking winning stocks may be difficult.
This is where our VGM Score comes handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three. Such a score allows you to eliminate the negative aspects of stocks and select wealthier options. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy), a favorable VGM Score. You can see industry ’s decline of 17.6%. While the Zacks S&P500 composite has been up 26.1%.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Zacks Investment Research
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