2 best healthcare stocks to buy right now

Persistently high inflation, huge interest rate hikes and military conflict in Ukraine have dramatically increased the likelihood of a global recession. Ned Davis Research estimates there’s a 98.1% chance of having one by 2023.

Healthcare is a sector of the global economy that should, for the most part, hold up well. Indeed, health goods and services are essential, especially with an aging world population that is more prone to health problems. Here are two companies that are ready to meet the growing demand for medical devices and prescription drugs.

Image source: Getty Images.

1. Abbott Laboratories

Most people are probably familiar with the healthcare giant Abbott Laboratories (ABT -0.64%) best for its rapid COVID-19 test, BinaxNOW. Its diagnostics business, led by its COVID-19 tests, is the company’s largest segment, accounting for 41.5% of its $23.2 billion in total revenue in the first half of 2022.

But with countless patents for life-saving and life-enhancing medical devices and consumer health products (like Similac infant formula), as well as generic pharmaceuticals in international markets, Abbott is more than most consumers do not recognize it. As the global elderly population is expected to grow from 617 million in 2015 to 1.6 billion by 2050, increased demand for the company’s products and new product launches are expected to drive higher revenues and profits.

Analysts expect Abbott’s non-GAAP (adjusted) diluted earnings per share (EPS) to grow 11% annually over the next five years. The company is also currently offering income investors a dividend yield of 1.8%, slightly higher than the 1.7% yield of the S&P500 index. And with its dividend payout ratio reaching around 37% in 2022, Abbott’s dividend should continue to grow rapidly in the years to come.

Sealing the deal on the “buy” case for the healthcare stock is its valuation. Abbott’s futures price-to-earnings (P/E) ratio of 22.1 is just below the medical device industry average futures P/E of 22.7. For a blue chip stock like Abbott, even a slight discount can make it an intriguing choice for investors.

2. Sanofi

French drug manufacturer Sanofi (SNY -0.10%) is best known for its megablockbuster immunological drug, Dupixent, which it co-owns with Regenerate (REGN -1.30%). Sanofi’s share of drug revenue increased 44.4% year-over-year to nearly $4 billion in the first half of 2022. This was driven by an increase in market share and an indication expanded last October to treat children aged 6 to 11 with asthma in the US

With Dupixent’s Food and Drug Administration (FDA) approval to treat eosinophilic esophagitis earlier this year, the drug’s revenue has plenty of room for growth in the coming years. Sanofi also has five other drugs and a polio and pertussis vaccine franchise on track to generate at least $1 billion in revenue this year.

And the company has a pipeline of 87 projects in various stages of clinical development in several therapeutic areas, such as immunology, oncology and vaccines. Analysts expect a bright future from Sanofi, with annual earnings growth of 12.3% over the next five years.

Investors in need of safe passive income right now won’t be disappointed with the stock’s 4.4% dividend yield. The dividend payout ratio going forward is expected to be a modest 42%, which would leave Sanofi with the capital needed to make acquisitions and repay debt to strengthen the business. The best part is that the stock can be bought at a forward P/E ratio of 9.1, which is well below the industry average of 10.8.

Kody Kester holds positions at Abbott Laboratories. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

Comments are closed.