2 best healthcare stocks to buy right now

NOTo Industry has arguably played a bigger role in increasing life expectancy around the world in recent decades than the healthcare industry. With a current global population of nearly 8 billion expected to reach just under 10 billion by 2050, the demand for healthcare products and services around the world is expected to increase significantly.

Here are two dividend-paying healthcare stocks that are expected to produce higher earnings and distribute dividend increases due to global population growth.

Image source: Getty Images.

1. UnitedHealth Group

The first stock to consider buying right now is health insurer UnitedHealth Group (NYSE:UNH). With a market cap of $505 billion, the stock is already halfway to the $1 trillion milestone.

UnitedHealth posted double-digit revenue and profit growth in 2021. And that double-digit profit growth looks set to continue in the years to come. Rising costs of medical care and increasing occurrence of chronic diseases are expected to lead to strong future growth of the global health insurance market.

This is why market research firm Vantage Market Research predicts that the market will grow at an annual rate of 4.4% to reach $3.3 trillion by 2028. This promising forecast, along with the status of ‘UnitedHealth as a major player in the industry, bodes well for the company. And that explains why analysts expect earnings to grow 14.6% a year over the next five years.

UnitedHealth’s 1.1% dividend yield is moderately below the S&P500is 1.4%, so it won’t impress income investors. But with the stock’s dividend payout ratio of 29%, strong earnings growth prospects and a potential annual dividend growth rate in the teens, that should offset the drop in immediate earnings.

A 45% rise in its stock price over the past year has pushed the price-to-earnings (P/E) ratio to 25. That’s significantly higher than the S&P 500’s forward multiple of 19. But for a security of its quality, the valuation still does not seem excessive.

2. Abbott Laboratories

The second stock to think about buying is the diversified healthcare stock Abbott Laboratories (NYSE:ABT). The company consists of four segments: diagnostics (like its BinaxNOW COVID-19 test), medical devices, nutrition (led by brands like Ensure and Glucerna) and established pharmaceuticals (branded generic drugs in emerging markets ).

The company’s two largest segments – diagnostics and medical devices – accounted for nearly 70% of its total revenue in 2021. And each of these markets should do well in the years to come.

Market research firm Data Bridge Market Research forecasts the global diagnostics market to grow at an annual rate of 9%, from $162.5 billion in 2021 to $339.9 billion by 2029. And market research firm Mordor Intelligence estimates that the global medical device market will grow at an annual rate of 5.5% from $532.6 billion in 2021 to $734.4 billion in 2027.

Abbott Labs’ well-known brands and encouraging prospects in the diagnostics and medical device markets should result in robust growth. In fact, analysts expect the stock’s earnings to grow 12.1% annually over the next five years.

Even better, Abbott is offering investors a market-beating 1.6% dividend yield. And since the stock’s dividend payout ratio was only 34.5% in 2021, the dividend should at least be able to increase based on future earnings. This means Abbott can offer investors an attractive combination of return and growth.

To top it all off, Abbott is trading at a forward P/E ratio of around 24. Given the quality of the stock, I think this premium to the S&P 500 is warranted.

10 stocks we like better than UnitedHealth Group
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and UnitedHealth Group wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of April 7, 2022

Kody Kester owns Abbott Laboratories and UnitedHealth Group. The Motley Fool recommends UnitedHealth Group. 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.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button