Medical stocks are a broad category that covers pharmaceutical companies, health insurers, medical technology companies, and even software companies that are aiding in the drug discovery process.
The reason investors need to focus on this sector is because of the significant addressable market. The U.S. population is getting older which brings its own set of medical issues. As technology races to keep up with that demand, many companies are set up for long-term growth. That growth will continue even as investors rotate out of other overvalued sectors in anticipation of interest rate cuts.
Most of the medical stocks in this special presentation are large-cap names that are part of many mutual funds and exchange-traded funds (ETFs). But if you have an appetite for risk and a timeframe that will allow for future growth, there are a couple of small-cap stocks to consider as well, and the common theme is how they're using artificial intelligence (AI).
Quick Links
- Eli Lilly
- AbbVie
- Vertex Pharmaceuticals
- UnitedHealth Group
- Intuitive Surgical
- Schrodinger
- Predictive Oncology
#1 - Eli Lilly (NYSE:LLY)
Eli Lilly & Co. (NYSE: LLY) has been one of the best-performing stocks in 2024. The stock’s stellar performance began in 2023 with the launch of its GLP-1 (glucagon-like peptide-1) drugs Mounjaro and Zepbound, which are used to treat type 2 diabetes and obesity, respectively. However, the company’s growth is also being fueled by other drugs in its portfolio, including Jardiance and Trulicity (diabetes), Verzenio (breast cancer) and, most recently, Kisunia (Alzheimer’s disease).
With a forward price-to-earnings (P/E) ratio of 68x, LLY stock is not cheap. But the company has several catalysts for future growth. One of the more intriguing ones is a next-generation weight-loss drug that targets three hormones and is showing solid results in Phase 2 trials.
Lilly is expected to grow earnings by 40% in the next 12 months. Some analysts believe that growth is already priced into the stock. On the other hand, Morgan Stanley reiterated its Overweight rating on LLY stock on August 27, 2024, with a $1,106 price target that would provide 16.3% upside.
About Eli Lilly and Company
Eli Lilly and Company discovers, develops, and markets human pharmaceuticals worldwide. The company offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-100, Humalog U-200, Humalog Mix 50/50, insulin lispro, insulin lispro protamine, insulin lispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; Jardiance, Mounjaro, and Trulicity for type 2 diabetes; and Zepbound for obesity.
Read More - Current Price
- $746.10
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $1,007.94 (35.1% Upside)
#2 - AbbVie (NYSE:ABBV)
AbbVie Inc. (NYSE: ABBV) is another large-cap biopharmaceutical company that investors can comfortably put on their long-term list. The big story that investors are watching is the company’s year-over-year (YOY) topline growth, which has turned positive in 2024 after several quarters in 2023 where YOY revenue was declining.
The difference is that the company’s Skyrizi and Rinvoq drugs are taking the pressure off of its long-time flagship drug Humira, which is now facing competition from biosimilar drugs. The company also has a pipeline of over 50 drug candidates that is heavily weighted in the areas of oncology and neuroscience.
As of August 27, 2024, ABBV stock is trading near its 52-week high. And with a forward P/E ratio of 18.1x, the stock is fairly valued among pharmaceutical stocks. However, since the company’s July earnings report, several analysts have reiterated their Overweight rating on the stock and are raising their price targets. You should also consider the company’s dividend, which pays out $6.20 per share on an annual basis and will likely be rising by the end of 2024.
About AbbVie
AbbVie Inc discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers Humira, an injection for autoimmune and intestinal Behçet's diseases, and pyoderma gangrenosum; Skyrizi to treat moderate to severe plaque psoriasis, psoriatic disease, and Crohn's disease; Rinvoq to treat rheumatoid and psoriatic arthritis, ankylosing spondylitis, atopic dermatitis, axial spondyloarthropathy, ulcerative colitis, and Crohn's disease; Imbruvica for the treatment of adult patients with blood cancers; Epkinly to treat lymphoma; Elahere to treat cancer; and Venclexta/Venclyxto to treat blood cancers.
Read More - Current Price
- $164.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $203.89 (23.7% Upside)
#3 - Vertex Pharmaceuticals (NASDAQ:VRTX)
The last of the big pharma companies on this list is Vertex Pharmaceuticals Inc. (NASDAQ: VRTX). The company is a leader in cystic fibrosis therapeutics, with its flagship therapy Trikafta capturing 90% of the current patient population. In addition to looking to expand the label on Trikafta, Vertex has a triple-combination therapy for CF in its pipeline.
The takeaway is that the company will hold a leadership position in CF for years to come. That alone would inspire investor confidence. However, Vertex is also taking the lead in the area of precision medicine. It's partnership with CRSPR Therapeutics Inc. (NASDAQ: CRSP) has resulted in a first-of-its-kind gene therapy treatment, Casgevy, for sickle cell disease and beta-thalassemia.
The Vertex Pharmaceuticals analyst forecast on MarketBeat has a Moderate Buy rating on the stock with a price target of $485.91. However, since reporting earnings in July, sentiment has been mostly bullish. Analysts are raising their price targets for ABBV stock; HC Wainwright is the most bullish with a target price of $600.
About Vertex Pharmaceuticals
Vertex Pharmaceuticals Incorporated, a biotechnology company, engages in developing and commercializing therapies for treating cystic fibrosis (CF). It markets TRIKAFTA/KAFTRIO for people with CF with at least one F508del mutation for 2 years of age or older; SYMDEKO/SYMKEVI for people with CF for 6 years of age or older; ORKAMBI for CF patients 1 year or older; and KALYDECO for the treatment of patients with 1 year or older who have CF with ivacaftor.
Read More - Current Price
- $465.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $499.12 (7.2% Upside)
#4 - UnitedHealth Group (NYSE:UNH)
Healthcare, and particularly health insurance, is another reason to consider medical stocks a long-term staple in your portfolio. And when you focus on health insurance companies, UnitedHealth Group Inc. (NYSE: UNH) belongs at the top of the list.
With a stock like UNH, you’re looking for a combination of value and growth. The value has come in the form of a dividend that has increased for 15 consecutive years, and not just by a little bit. In the last 10 years, the company has increased its payout by 460%. That’s well above its three-year average of around 14%.
But here’s where investors can get really excited. Over that same period, the total return for UNH stock is 703%, and the stock price growth alone is 540%.
The driving force behind all that growth is predictable and growing cash flow. As one of the largest health insurers in the world, the company has the ability to increase its prices while also generating additional revenue from its technology unit, Optum.
About UnitedHealth Group
UnitedHealth Group Incorporated operates as a diversified health care company in the United States. The company operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage, and health and well-being services to individuals age 50 and older addressing their needs; Medicaid plans, children's health insurance and health care programs; and health and dental benefits, and hospital and clinical services, as well as health care benefits products and services to state programs caring for the economically disadvantaged, medically underserved, and those without the benefit of employer-funded health care coverage.
Read More - Current Price
- $592.44
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $615.53 (3.9% Upside)
#5 - Intuitive Surgical (NASDAQ:ISRG)
Intutitive Surgical Inc. (NASDAQ: ISRG) is the company that created the da Vinci robotic surgical system that has become the industry standard in the growing field of minimally invasive care. In 2023, over 2.2 million procedures were performed using the da Vinci system, and the company continues to install systems throughout the world.
Ten years ago, Intuitive Surgical was largely a hardware play, albeit in the field of robotics. That also means the company has been a forerunner in AI and will continue to do so in the future.
But long-term investors should focus on the software and systems side of the company’s business which is allowing the company to grow its topline with annual recurring revenue (ARR). In fact, approximately 83% of the company’s revenue is now coming from ARR.
While UNH is an ideal long-term stock, investors should look for a good entry point. As of August 27, 2024, the stock is trading around 93x forward earnings. That’s expensive by any measure. But investors should consider buying any meaningful pullback.
About Intuitive Surgical
Intuitive Surgical, Inc develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally. The company offers the da Vinci Surgical System that enables complex surgery using a minimally invasive approach; and Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung.
Read More - Current Price
- $527.61
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $513.74 (2.6% Downside)
#6 - Schrodinger (NASDAQ:SDGR)
One of the obstacles for bio pharmaceutical stocks is the time it takes to bring drugs to market. That's because the process of matching molecular behavior with potential outcomes is tedious and expensive. And that cost is hard to bear when considering that many drugs never make it out of clinical trials.
However, it’s also a process that is being made easier through the use of AI. Schrodinger Inc. (NASDAQ: SDGR) is a small-cap company that is using AI to assist some of the biggest industry names with drug discovery. That’s helping to bring revenue in the door today. The company also has a proprietary pipeline of drugs that are years away from approval.
The risk-reward proposition for SDGR stock is clear. As noted above, the company is generating revenue, but it’s not profitable yet, and that won’t be coming in the next 12 months or longer. But at around $20 per share as of August 27, 2024, opening a small position today may pay off in the future.
About Schrödinger
Schrödinger, Inc, together with its subsidiaries, develops physics-based computational platform that enables discovery of novel molecules for drug development and materials applications. The company operates in two segments, Software and Drug Discovery. The Software segment is focused on licensing its software to transform molecular discovery for life sciences and materials science industries.
Read More - Current Price
- $18.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $32.90 (77.8% Upside)
#7 - Predictive Oncology (NASDAQ:POAI)
With a market cap of just over $3 billion, Predictive Oncology Inc. (NASDAQ: POAI) classifies as a mid-cap stock. However, with the stock trading below $1, it also falls into the category of penny stocks.
Predictive Oncology is similar to Schrodinger in that it uses AI to assist the drug discovery process. However, as the company’s name points out, its sole focus is on finding and developing better cancer treatments. To do so, the company uses its PEDAL active learning platform. Predictive Oncology has 11 drugs on the market, with approximately 180 in development.
That said, this is a company that is not currently profitable and generating very little revenue. POAI stock is down approximately 72% in 2024, which makes it one of the worst-performing stocks in that period. It also has issued a "going concern" warning, meaning there is significant doubt about the company's ability to continue operating over the next 12 months without taking drastic measures like restructuring, obtaining additional financing, or selling assets. Simply put, it’s a shot in the dark. But with demand for new oncology treatments continuing to grow, it may be worth a speculative investment.
About Predictive Oncology
Predictive Oncology Inc operates as a science-driven company on the oncology drug discovery. It provides various solutions for the oncology drug development. The company, through the integration of scientific rigor and machine learning, has developed the ability to advance molecules into medicine by introducing human diversity earlier into the discovery process with the pairing of artificial intelligence and the biobank of approximately 150K tumor samples.
Read More - Current Price
- $0.69
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $3.00 (336.9% Upside)
In addition to the catalysts we mentioned in this presentation, another reason to consider investing in these medical stocks is their defensive qualities. Consumers may be able to trade down for certain products, but when it comes to their health insurance and their prescriptions, they typically won't compromise. This gives these companies a stable revenue base.
However, investors want more than just stability, they also want growth - and the companies on this list have many catalysts for future growth. Medical technology (med tech) on both the hardware and software side will continue to be a relevant and growing field with the continued emergence of AI.
If you want to do more research on one or more of the stocks in this presentation, or if you're looking for other medical stocks, MarketBeat provides investors with an updated list of the largest 50 medical stocks. This allows you to review pertinent information about these companies, including recent earnings reports, analyst forecasts, an interactive stock price chart and more.
More Investing Slideshows:
