10 Best Health Care Stocks to Buy for 2023 | Investing

Laura

Health care stocks have lagged behind the broader market so far in 2023, but they can be a solid defensive play in an uncertain economy. People don’t typically reduce their prescription drug purchases or put off procedures and trips to the doctor just because the economy is in a slump.

The Centers for Medicare & Medicaid Services estimates that U.S. health care spending totaled $4.4 trillion in 2022 and expects that figure to grow by 5.4% annually through 2031. For context, the organization expects average gross domestic product growth of 4.6% over the same period, making the sector an excellent long-term investment opportunity.

Here are 10 of the best health care stocks to buy in 2023, according to CFRA Research analysts:

Stock Implied upside over June 20 closing price
UnitedHealth Group Inc. (ticker: UNH) 26.8%
Eli Lilly and Co. (LLY) 7.3%
Merck & Co. Inc. (MRK) 17.0%
Pfizer Inc. (PFE) 22.0%
Abbott Laboratories (ABT) 21.8%
Medtronic PLC (MDT) 9.1%
Intuitive Surgical Inc. (ISRG) 6.8%
Vertex Pharmaceuticals Inc. (VRTX) 9.4%
Boston Scientific Corp. (BSX) 3.6%
HCA Healthcare Inc. (HCA) 5.5%

UnitedHealth Group Inc. (UNH)

UnitedHealth is one of the largest U.S. health care insurers. Analyst Paige Meyer says UnitedHealth has excellent growth prospects for a company with such massive scale. Meyer says the $8 billion Change Healthcare acquisition will be a bullish medium-term catalyst for UnitedHealth and will help its Optum health care services subsidiary integrate additional technology into its offerings. Now that the COVID-19 pandemic has subsided, Meyer says UnitedHealth’s financial visibility and stability should improve. She projects 11% revenue growth in 2023 and 8% growth in 2024. CFRA has a “buy” rating and $595 price target for UNH stock, which closed at $469.39 on June 20.

Eli Lilly produces brand-name prescription drugs to treat a wide range of medical conditions, including diabetes, cancer and neurological disorders. Analyst Sel Hardy says Eli Lilly has several positive catalysts ahead in the medium to long term. The U.S. Food and Drug Administration rejected accelerated approval for the company’s donanemab Alzheimer’s disease treatment in January, but Hardy says the drug could eventually be a big moneymaker for Eli Lilly. In addition, Hardy is bullish on several other late-stage pipeline therapies, including cancer drug pirtobrutinib. CFRA has a “buy” rating and $485 price target for LLY stock, which closed at $451.95 on June 20.

Merck is one of the world’s largest pharmaceutical companies. Merck recently reported a 9% year-over-year revenue drop in the first quarter, despite 20% sales growth from leading cancer drug Keytruda. Sales for Merck’s HPV vaccine Gardasil were also up 35%. Hardy says Merck’s decision to spin off Organon & Co. (OGN) removed its older, slower-growing business and left Merck as a more focused, faster-growing entity. Merck says the spinoff will generate $1.5 billion in operating efficiency by 2024. Unfortunately, Hardy projects slumping COVID-related sales will weigh on growth throughout 2023. CFRA has a “buy” rating and $129 price target for MRK stock, which closed at $110.23 on June 20.

Pfizer is a global biopharmaceutical company that has a diversified portfolio of drug products and an extensive pipeline of candidates. The company projects sales of its Comirnaty COVID-19 vaccine will drop 64% in 2023, while sales of its COVID-19 oral antiviral Paxlovid will drop 58%. In addition, the company has $17 billion in revenue at risk due to loss of patent exclusivity between 2025 and 2030. Fortunately, Hardy says Pfizer’s pipeline is strong enough to offset these risks and will generate value for investors in the long term. CFRA has a “buy” rating and $48 price target for PFE stock, which closed at $39.34 on June 20.

Abbott Laboratories (ABT)

Abbott Laboratories is a diversified health care company and a member of an exclusive club called dividend aristocrats, which are 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 per share. Last year was the 51st consecutive year Abbott investors have enjoyed a dividend hike. Meyer says Abbott’s innovative business, strong balance sheet and growing dividend will help the stock outperform its peers in the long term. CFRA has a “buy” rating and $130 price target for ABT stock, which closed at $106.70 on June 20.

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 product launches and exposure to a rebound in medical procedure volumes should boost the stock in the next year. Meyer is particularly bullish on Medtronic’s robotic assisted surgery platform, and she projects 3% revenue growth in fiscal 2024. CFRA has a “buy” rating and $97 price target for MDT stock, which closed at $88.94 on June 20.

Intuitive Surgical Inc. (ISRG)

Intuitive Surgical produces robotic systems used for a range of different surgical procedures. Meyer says Intuitive has one of the best management teams in the medical-device industry. In addition, she says the company’s defensive competitive position, long-term growth opportunities and attractive margins are all bullish for investors. Meyer sees room for earnings multiple expansion and says the COVID-19 pandemic accelerated the adoption of robotic surgery, a trend she sees continuing in the next several years. Meyer projects 15% revenue growth in 2023 and 13% growth in 2024. CFRA has a “buy” rating and $350 price target for ISRG stock, which closed at $327.83 on June 20.

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 the CRISPR Therapeutics AG (CRSP) gene-editing therapy exa-cel, which could launch as early as the end of 2023. Hardy says Vertex has a first-mover advantage in the CF market and its core business helps fund growth opportunities, including its early- and mid-stage clinical programs outside of CF. Hardy is particularly optimistic about potential sickle cell disease cure CTX001. CFRA has a “buy” rating and $375 price target for VRTX stock, which closed at $342.69 on June 20.

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 shares are attractively valued given the company’s sizable pipeline and impressive recent product launches. She is particularly bullish on Watchman FLX, Exalt-D, POLARx, LUX-Dx, Eluvia and SpyGlass as growth drivers. Shares trade at a valuation discount compared to leading competitors, but Meyer projects peer-leading revenue growth for Boston Scientific over the next several years. She projects 9% revenue growth in 2023 and 8% growth in 2024. CFRA has a “buy” rating and $56 price target for BSX stock, which closed at $54.04 on June 20.

HCA Healthcare Inc. (HCA)

HCA Healthcare owns one of the largest for-profit health care facilities companies and owns 182 hospitals and 126 freestanding surgery centers in the U.S. and U.K. Analyst Daniel Rich says patient volumes seem to be improving, and the facilities business is one of the leading sub-industries in the health care sector. Rich is bullish on HCA’s capital spending plan, including the construction of three new hospitals in Florida and five in Texas. He projects between 5% and 5.5% revenue growth in 2023 and 2024. CFRA has a “buy” rating and $301 price target for HCA stock, which closed at $285.30 on June 20.

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