5 top healthcare stocks for earnings growth in 2024

Key Points

• Analysts forecast healthcare stocks to lead S&P this year in earnings increases.
• Humana, Elevance, Incyte, Insulet and Cigna are expected to be the biggest earnings gainers.
• Wall Street says many factors that had been pressuring the industry are largely gone, or already baked into forecasts.

While the healthcare sector delivered lackluster profit growth in 2023, it should change this year. 

Sector components forecast to show the biggest earnings year-over-year earnings improvement include Humana Inc. NYSE: HUM, Elevance Health Inc. NYSE: ELV, Incyte Corp. NASDAQ: INCY, Insulet Corp. NASDAQ: PODD and Cigna Group NYSE: CI.   

The stock price reflected the tepid 2023 sector performance.

The Health Care Select Sector SPDR Fund NYSEARCA: XLV eked out a 2023 return of 2.06%, primarily due to the strength of a few stocks such as Eli Lilly & Co. NYSE: LLY and Intuitive Surgical Inc. NASDAQ: ISRG. 

It's outside the S&P 500, but Denmark-based Novo Nordisk A/S NYSE: NVO joins Eli Lilly as a stock that saw significant increases due to anti-obesity medications. Intuitive Surgical was driven primarily by growth in the volume of surgeries using its robotic gear and higher pricing. 

Analysts are forecasting healthcare stocks to post the S&P's biggest earnings increases among all the sectors this year.

Industry pressures easing

In a January 5 report, "What to expect in U.S. healthcare in 2024 and beyond," consulting firm McKinsey said, "The acute strain from labor shortages, inflation, and endemic COVID-19 on the healthcare industry's financial health in 2022 is easing."

However, profit margins are still squeezed, but whenever a company or industry is bouncing back from a series of challenges, there's generally plenty of upside potential. 

Healthcare stocks can sometimes be considered value stocks due to their potential for strong fundamentals, lower valuations relative to fast-growing technology stocks and the market's occasional oversight of healthcare's unique combination of growth potential and stability. 

Sector has growth and defensive traits

Healthcare has elements of both growth and defensives. The former characterization is due to constant research and development and deployment of new technologies, mainly in the biotech area, but also when it comes to infotech and robotics. 

McKinsey analysts addressed that in their 2024 forecast: "On the healthcare delivery side, financial performance will continue to rebound as transformation efforts, M&A, and revenue diversification bear fruit."

They said that adopting new tech will also drive the performance of healthcare services and technology businesses. Specialty pharmacy services should also be a growth area. 

You may consider healthcare stocks defensive, as many of the largest companies in the sector are reliable dividend payers. 

Earnings outlook for 2024

• Humana: Wall Street expects the health insurer to grow earnings by 11% this year. Humana analyst forecasts show a consensus view of "moderate buy." 
• Elevance: Forecasts call for a 12% earnings increase. MarketBeat's Elevance earnings data show a long history of beating earnings views. 
• Incyte: The developer of cancer treatments should grow earnings by 21% in 2024, with more double-digit growth forecast for 2025.
• Insulet: Analysts expect a 26% earnings improvement this year, following another solid year in 2023, which the company reports on February 22. 
• Cigna: The insurance giant should grow earnings by 14% in 2024. Cigna dividend data show the company boosting its shareholder payout for the past three years. 

Why analysts and investors see growth ahead

Analysts believe the widely expected cuts in interest rates would benefit the sector as a whole.

In addition, another worry is largely off the table: Traditionally, healthcare stocks underperform in presidential election years as politicians try to get attention with promises of lower prescription prices or healthcare premiums. 

However, some Washington meddling seems baked into prices.

For example, the Biden administration already pushed through a Medicare drug price negotiation program that's survived legal challenges. Analysts have already incorporated expected changes into their models. 

Finally, while antitrust regulators have become more active in recent years, the approval of Pfizer Inc.'s NYSE: PFE acquisition of Seagen and Amgen Inc.'s NASDAQ: AMGN acquisition of Horizon Therapeutics eased concerns about a possible decline in merger and acquisition deals that spur growth.