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After outperforming the S&P 500 in 2022, health care stocks have faltered in 2023. Despite the short-term dip, the health care industry can be an excellent defensive play in an environment of economic uncertainty, as people don’t typically reduce their prescription drug purchases, put off procedures or cancel doctor visits just because the economy is in a slump. The Centers for Medicare and Medicaid Services estimates that U.S. health care spending will grow by an average annual rate of 5.1% between 2021 and 2030 to reach $6.8 trillion, providing excellent long-term investment opportunities.
Here are 10 of the best health care stocks to buy in 2023, according to CFRA Research analysts:
|Stock||Implied upside over March 21 closing price|
|UnitedHealth Group Inc. (ticker: UNH)||23.9%|
|Merck & Co. Inc. (MRK)||14.6%|
|Pfizer Inc. (PFE)||27.9%|
|Abbott Laboratories (ABT)||23.1%|
|Medtronic PLC (MDT)||25.6%|
|CVS Health Corp. (CVS)||29.7%|
|Cigna Group (CI)||19.3%|
|Zoetis Inc. (ZTS)||20.3%|
|Vertex Pharmaceuticals Inc. (VRTX)||11.3%|
|Boston Scientific Corp. (BSX)||12.6%|
UnitedHealth Group Inc. (UNH)
UnitedHealth is the largest U.S. managed health care company. Analyst Paige Meyer says UnitedHealth has excellent growth prospects, and its $8 billion acquisition of Change Healthcare should be a positive catalyst for its Optum unit. With COVID-19 disruptions now over, Meyer says UnitedHealth should have a more stable and predictable financial outlook. Meyer projects 11% revenue growth in 2023 and 7% in 2024. In addition, Meyer anticipates Optum will add 750,000 new patients and grow Optum Health revenue per user by 25% this year. CFRA has a “buy” rating and $595 price target for UNH stock, which closed at $480.10 on March 21.
Merck is one of the world’s largest pharmaceutical companies. Merck recently reported 2% year-over-year revenue growth in the fourth quarter, including 19% sales growth from leading cancer drug Keytruda. Sales for Merck’s HPV vaccine Gardasil were also up 6%. Analyst Stewart Glickman says Merck’s decision to spin off its older, slower-growing businesses into Organon & Co. (OGN) has left Merck as a more focused, faster-growing company. In addition, Merck’s 2021 acquisition of Acceleron Pharma has helped Merck tap further into the large and growing cardiovascular disease treatment market. CFRA has a “strong buy” rating and $121 price target for MRK stock, which closed at $105.54 on March 21.
Pfizer is a global biopharmaceutical company that has a diversified product range and a long list of drug candidates. In the fourth quarter, Pfizer reported 2% revenue growth. However, the company anticipates sales of its Comirnaty COVID-19 vaccine will drop 64% and sales of its COVID-19 oral antiviral Paxlovid will drop 58% in 2023. In addition, the company has $17 billion in revenue at risk due to loss of patent exclusivity between 2025 and 2030. Fortunately, Glickman says Pfizer’s pipeline is strong enough to offset those losses. CFRA has a “buy” rating and $52 price target for PFE stock, which closed at $40.66 on March 21.
Abbott Laboratories (ABT)
Abbott Laboratories is a diversified health care company and a member of an exclusive club called the Dividend Aristocrats – stocks that have raised their dividends for at least 25 consecutive years. In December, Abbott boosted its quarterly dividend by 8.5% from 47 cents to 51 cents, giving it a current yield of 2.1%. Last year marked the 51st consecutive year Abbott investors have enjoyed a dividend hike. Meyer says Abbott’s dividend, strong balance sheet and innovative business will help the stock outperform peers over the long term. CFRA has a “buy” rating and $121 price target for ABT stock, which closed at $98.33 on March 21.
Medtronic is a health care device manufacturer that operates in four segments: cardiovascular, medical surgical, neuroscience and diabetes. The company is planning to spin off its patient monitoring and respiratory interventions business as part of its plan to streamline its portfolio and focus on higher-growth sales. Meyer says Medtronic’s upcoming slate of product launches coupled with a rebound in global medical procedures will drive upside for Medtronic shares in the next year. Meyer is particularly bullish on the company’s robotic assisted surgery platform. CFRA has a “buy” rating and $102 price target for MDT stock, which closed at $81.23 on March 21.
CVS Health is the largest U.S. pharmacy health care provider. Meyer says CVS has a strong balance sheet, impressive free cash flow and an attractive valuation. In addition, Meyer says the company’s transition from a drug store retailer to a holistic health care provider sets it apart from competitors. CVS sells insurance, manages prescription drugs and also provides primary care for patients. Meyer expects CVS to expand its primary care business further in coming years following its buyout of Oak Street in late 2022. CFRA has a “buy” rating and $98 price target for CVS stock, which closed at $75.56 on March 21.
Cigna is one of the largest U.S. managed care organizations and pharmacy benefit managers. Meyer says both Evernorth and Cigna Healthcare will be long-term growth drivers. Cigna is also working on several additional strategic priorities, including expanding into international markets, increasing its U.S. government capabilities, and branching out into digital care, home care and behavioral health. Meyer projects revenue growth will increase from 5.2% in 2023 to 21.5% in 2024 thanks to Express Script’s contract to become insurance provider Centene’s new pharmacy benefit manager starting in 2024. CFRA has a “buy” rating and $330 price target for CI stock, which closed at $276.62 on March 21.
Zoetis develops animal vaccines, medicines and diagnostics for veterinarians and livestock producers. Glickman says Zoetis is a leading name in the global animal health market. In addition, he says the company’s companion animal business should be a long-term growth source. Zoetis is gaining market share in pet parasiticides, which Glickman says is the largest opportunity in animal health. The company is also making big advances in companion animal pain management. With supply chain issues now resolved, Glickman projects 2023 and 2024 revenue growth of between 5% and 7%. CFRA has a “buy” rating and $200 price target for ZTS stock, which closed at $166.24 on March 21.
Vertex Pharmaceuticals Inc. (VRTX)
Vertex Pharmaceuticals is a biopharmaceutical company that specializes in developing therapies to treat cystic fibrosis, or CF. Vertex also owns the rights to 60% of the profits from sales of CRISPR Therapeutics AG (CRSP) gene-editing therapy exa-cel, which could potentially be launched by the end of 2023. Glickman says Vertex’s core CF business enjoys a first-mover advantage over competitors and is complemented by the company’s clinical-stage programs outside of CF. Glickman is particularly bullish on CTX001, a drug candidate that could potentially be a one-time cure for sickle cell disease. CFRA has a “buy” rating and $337 price target for VRTX stock, which closed at $302.66 on March 21.
Boston Scientific Corp. (BSX)
Boston Scientific is a medical device manufacturer that specializes in cardiovascular, rhythm management and medical-surgical equipment. Meyer says Boston Scientific has an attractive combination of recently launched products and a supportive pipeline. She notes that Boston Scientific is highly exposed to elective procedures demand, which flipped from a headwind to a tailwind following the COVID-19 pandemic. Meyer says the stock looks “quite attractive,” given it trades at a valuation discount to peers yet is positioned to outgrow those same peers over the next several years. CFRA has a “buy” rating and $55 price target for BSX stock, which closed at $48.84 on March 21.