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Healthcare Stocks: Definition and Top Picks in the US Stock Market



Healthcare stocks refer to companies that develop pharmaceuticals, manufacture medical devices, or provide medical care or health insurance. The sector’s strong numbers appeal to many investors, as health spending accounted for almost 18% of US gross domestic product (GDP) at the end of 2019 and is expected to top $6 trillion annually by 2028. In this article, we will discuss the definition of healthcare stocks and the best healthcare stocks in the US stock market.


Definition of Healthcare Stocks


Healthcare stocks belong to the healthcare sector, which includes pharmaceuticals, biotechnology, healthcare providers, medical equipment, and health insurance companies. Healthcare stocks are defensive stocks that provide steady returns in any market because people will always need healthcare. The healthcare sector is growing faster than the rest of the economy, driven by technological advances, an aging population, and improving treatments for chronic diseases and conditions.


Top Healthcare Stocks in the US Stock Market


UnitedHealth Group Inc (UNH)

UnitedHealth Group is the biggest publicly traded health insurance company in the US by market capitalization, with a market cap of $441 billion. It offers numerous health insurance plans and owns Optum, which provides healthcare benefits like health savings accounts. UnitedHealth has a strong track record of paying shareholders regular dividends, and its provider networks span the country. Its 5-year average annualized return is 16.4%, while its 10-year average annualized return is 24.6%.


Johnson & Johnson (JNJ)

Johnson & Johnson is a healthcare conglomerate that makes pharmaceuticals, medical devices, and consumer healthcare products, with a market cap of $430 billion. Researchers at the company developed one of the three FDA emergency authorized Covid-19 vaccines, the only single-shot option currently available. J&J has a whopping 130,000 employees spread across operations in 60 countries. Its 5-year average annualized return is 6.1%, while its 10-year average annualized return is 10.4%.


Eli Lilly and Co (LLY)

Eli Lilly is an Indiana-based pharmaceutical firm with a market cap of $322 billion. It employs more than 34,000 employees across 18 countries and sells its products in 120 different countries. The company was founded in 1876 by Colonel Eli Lilly, who was a veteran of the Civil War. One of the first products it developed was quinine, a medication used to treat malaria. Its 5-year average annualized return is 33.6%, while its 10-year average annualized return is 20.7%.


Novo Nordisk A/S (NVO)

Novo Nordisk is a Danish pharmaceutical company with a market cap of $308 billion. It has more than 45,000 employees and sells its products in over 160 countries. The company is led by CEO Lars Fruergaard Jørgensen, who also serves as vice president-elect of the European Federation of Pharmaceutical Industries and Associations. In 2012, Novo was named the most sustainable company in the world by Canadian media company Corporate Knights. Its 5-year average annualized return is 22.3%, while its 10-year average annualized return is 14.1%.


Merck & Co Inc (MRK)

Merck is the oldest company on our list, tracing its history back to 1668, with a market cap of $261 billion. The company’s predecessor firm was founded by the Merck family in Germany, and the modern incarnation of Merck was actually started as an American affiliate of the German enterprise in 1891. Merck makes pharmaceuticals and vaccines and has operations in more than 140 countries. The firm was bought back at government auction in 1919 for $3.5 million by George Merck, a member of the Merck family, with help from Goldman Sachs and Lehman Brothers. Its 5-year average annualized return is 14.9%, while its 10-year average annualized return is 11.7%.


Pfizer Inc (PFE)

Pfizer is a New York City-based pharmaceuticals giant that makes medicines, vaccines, and some consumer healthcare products, with a market cap of $247 billion. Pfizer has operations in more than 50 countries around the world, and in 2020, only about half of its revenue came from the United States. Pfizer’s top-selling pharmaceuticals are household names, including Zoloft, Viagra, and Xanax. The company has also developed one of the leading Covid-19 vaccines, which it expects will defend against the new omicron variant of the disease. Its 5-year average annualized return is 7.6%, while its 10-year average annualized return is 7.8%.


Advantages of Investing in Healthcare Stocks


As mentioned earlier, healthcare stocks provide steady returns in any market, making them defensive stocks. The healthcare sector is growing faster than the rest of the economy, driven by technological advances, an aging population, and improving treatments for chronic diseases and conditions. Healthcare spending in the US is seeing strong, sustained growth, projected to grow at an average annual rate of 5.4% through 2028, reaching $6.2 trillion and 19.7% of the country’s GDP.


Risks of Investing in Healthcare Stocks


However, investing in healthcare stocks also comes with risks. The rising costs of US healthcare appear unsustainable, and there are increasing calls for government action and regulatory changes to do something about the ever-climbing cost of care and health insurance. Disruption by new players is a constant threat for established healthcare stocks, as more and more tech companies are getting involved in the healthcare sector. Sustaining growth can also be challenging for some types of healthcare stocks, as companies that make drugs and medical devices must convince health insurers and government agencies to continue buying their products.


Conclusion


Investing in healthcare stocks can provide steady returns in any market, with the healthcare sector growing faster than the rest of the economy. However, it also comes with risks, including the rising costs of US healthcare, disruption by new players, and challenges in sustaining growth for some types of healthcare stocks. The top healthcare stocks by market capitalization in the US stock market include UnitedHealth Group Inc, Johnson & Johnson, Eli Lilly and Co, Novo Nordisk A/S, Merck & Co Inc, and Pfizer Inc. Investors should always do their research and consult with a financial advisor before investing in any stocks.


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