Biotech, hands down, wins the race for out-performance in the healthcare sector. Delivering new, valuable medicines has proven to be a winning strategy, even if the growth in their stocks is based on the hope of future drugs.
However, this list focuses on the top 10 healthcare stocks in 2019, not just biotech. Market leaders in other important segments of healthcare, like diagnostics and facilities, are included alongside four stellar performing biotechs. Selection for this year's list is based on stock performance from the start of the year through Dec. 20. And now without further ado...
Zoetis (ZTS -0.30%) was the best performing large-cap pharmaceutical stock. The largest animal health company in the world and former spin-off from Pfizer gained 55% in 2019, achieving a healthy $63 billion valuation. This top performer also boosted its dividend by 22%, its sixth consecutive annual dividend hike since going public.
9. Medpace Holdings
Use of third-party contract research organizations or CROs continues to be a growing trend for pharmaceutical and biotech companies. CROs help run the thousands of clinical trials going on globally. Up-and-comer Medpace Holdings (MEDP 0.69%) led the pack with stock appreciation of 59.5%.
8. Guardant Health
Guardant Health (GH 0.75%) led the diagnostics field notching gains in excess of 120%. Since it's October 2018 IPO, the stock climbed nearly 400%. The company capitalizes on a growing trend for molecular profiling of cancer patients' tumors. Using its non-invasive blood-based cancer diagnostic called Guardant360, Guardant hopes the test results will enable physicians to make better informed treatment decisions.
7. Tenet Healthcare
Tenet Healthcare (THC 1.44%), an operator of 65 hospitals and approximately 500 other healthcare facilities, overcame a choppy year of trading in its stock price to ultimately end the year up 126%. With healthcare likely to be a key issue for next year's election, analysts remain mixed on Tenet's prospects. Days ago, Mizuho raised its price target to $41 while J.P. Morgan issued an underweight rating and $31 price target.
Diagnostic laboratories services company NeoGenomics (NEO -0.58%) led the healthcare tools and services sub-sector with a 126% return. Its network of labs provides genetic and molecular testing of cancer tissues for hospitals, oncologists, researchers, and pharmaceutical companies. NeoGenomics' lab services provides key information to make personalized cancer therapy a reality.
Medical device stock Nevro (NVRO -0.75%) attained a 194% return for its investors in 2019. The company's spinal cord stimulation treatment for chronic pain continues to gain traction among doctors and patients. It recently increased its full-year revenue guidance to $383 million to $386 million with expected gross margins between 68% and 70%.
4. Eidos Therapeutics
Eidos Therapeutics' (EIDX) 346% gain this year secures fourth place on the list. Focused on the treatment of a rare disease called transthyretin amyloidosis, Eidos must square off with Pfizer that has a competing drug for the disease that gained FDA approval earlier this year. Not your typical biotech, Eidos spun off from its parent company, BridgeBio Pharma and went public in mid-2018. In 2019, BridgeBio wanted Eidos back and offered to acquire it. Eidos successfully spurned the buyout, yet 65.6% of the stock remains in BridgeBio's hands. Perhaps having fewer shares on the market helped fuel its outstanding run this year.
3. Arrowhead Pharmaceuticals
Arrowhead Pharmaceuticals (ARWR 0.09%) takes third place for top biotech investments, having increased in value by 411% since the start of the year. Arrowhead is developing a slew of RNA interference (RNAi) drugs intended to silence specific disease-causing genes. Alnylam, a competitor in the field, gained approval of the first RNAi drug at the end of 2018 and another this November, proving to skeptics that this therapeutic approach can be viable.
Arqule (ARQL) comes in second, as its year-to-date return inches closer to 600%. In December, Merck announced it reached an agreement to buy the cancer drug developer for $2.7 billion. The deal rewarded Arqule shareholders with an attractive 107% premium to where the stock had been trading.
1. Kodiak Sciences
Blazing the way, Kodiak Sciences (KOD 0.50%) surged more than 800% as its stock price grew from $7.34 to $67.03. This developer of drugs for chronic eye diseases just added to its war chest by raising $317.4 million from investors and another $225 million from the sale of future royalties for one of its drugs. Kodiak now needs to deploy that cash to fund a pivotal clinical trial for its drug KSI-301 as a treatment for wet age-related macular degeneration.
And now for something more...
Sometimes an investment soars so dramatically that its wealth creation must be noted. The Motley Fool focuses on stocks above $200 million in market cap, but two biotech companies with current $3.5 billion and $1.5 billion valuations, respectively, began the year in the humbler sub-$100 million market-cap range.
This year's healthcare honorable mentions go to: Axsome Therapeutics (AXSM 2.51%) and Constellation Pharmaceuticals (CNST).
Axsome's stock skyrocketed an astronomical 3,700% from $2.68 on Jan. 2 to $100.67 last Friday. Focused on treatments for central nervous system diseases, Axsome reported positive phase 3 clinical trial results last week for its drug to treat major depressive disorders. More than 17 million people in the U.S. suffer from this condition making it a lucrative opportunity.
Constellation closed 2018 at $4.01 per share. Now it's at $43.78 -- almost 1000% higher! The stock jumped dramatically in early November when early snippets of data on its blood cancer drug were published in advance of a data presentation at a major medical meeting.
Clearly, Axsome and Constellation were this year's winning lottery tickets. Is there room to grow? Sure, but it's hard to envision them repeating the dizzying returns of 2019.
The performance of Axsome's stock teaches investors a valuable lesson in patience. An investor had to watch his or her money multiply five-, 10-, or 20-fold (tremendous achievements in their own right!) yet resist the urge to sell. Those with the temerity to hold on experienced a 35-fold increase in their investment. Likewise, it is psychologically tough to buy a stock that has doubled, tripled, or more in a short time period. These stocks show that being able to overcome these mental hurdles yielded great investment returns.
2020 will be ripe with healthcare investments set to handily outperform the sector. Good luck finding the next Kodiak or Axsome!