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3 Top Healthcare Stocks to Buy in January

By Keith Speights - Jan 4, 2020 at 12:18PM

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Three very different areas of healthcare. One big common denominator: great growth prospects.

A new year is here. And so are new opportunities to profit from healthcare stocks

Three healthcare stocks that look like smart picks to buy in January are Axsome Therapeutics (AXSM 9.66%), Guardant Health (GH 11.63%), and Intuitive Surgical (ISRG 2.62%). Here's why these stocks could be poised to deliver tremendous gains.

Healthcare professional holding a tablet with healthcare-related images appearing over the tablet.

Image source: Getty Images.

1. Axsome Therapeutics

Axsome ranked as the top-performing biotech stock of 2019 with its shares skyrocketing close to 3,600%. The fireworks started early in the year with encouraging results for experimental drug AXS-05 in a phase 2 clinical study targeting treatment of major depressive disorder. Axsome reported great results late in 2019 for AXS-05 in a pivotal late-stage study.

But is Axsome still a stock to buy after its massive gains? I think so. There should still be plenty of room to run if AXS-05 wins Food and Drug Administration approval. There's no guarantee that will happen, but my view is that the odds look pretty good based on the late-stage results.

AXS-05 holds the potential to achieve peak annual sales of around $1.5 billion for treating depression. Axsome is also evaluating the drug in a late-stage study targeting Alzheimer's disease agitation. That indication could tack on another $1 billion or so in potential peak annual sales. With its market cap currently at $1.8 billion, I think this stock is still a winner.

2. Guardant Health

Guardant Health delivered a 107% return last year, which might not seem nearly as impressive following a discussion of Axsome's performance but is still enough to land a spot among the top healthcare stocks of 2019. The company's success stemmed from rapidly growing sales of Guardant360 and GuardantOmni, liquid biopsies that detect cancer by finding tiny fragments of DNA broken off from tumor cells.

Even after tremendous sales growth in 2019, Guardant Health is still only its early innings. The company's addressable market for Guardant360 and GuardantOmni is around $6 billion. But its LUNAR liquid biopsies, which currently are only available for research use, could open the door to an addressable market topping $45 billion annually.

Guardant Health isn't likely to capture all of that addressable market. There are other companies developing liquid biopsies. However, Guardant Health is already the leader in the market and should be well on its way to grabbing a significant market share.

3. Intuitive Surgical

Intuitive Surgical might really look like an underachiever in comparison to Axsome and Guardant Health with its 2019 gain of 23%. However, the robotic surgical systems pioneer claims an important feather in its cap that the smaller companies don't: It's highly profitable.

My colleague Sean Williams wrote last month that the stock "comes awfully close to being a surefire investment." I think that he's right. Intuitive's recurring revenue makes up more than 70% of its total revenue. Its track record and head start in robotic surgery give it a significant competitive advantage.

The company's growth opportunities remain very strong as well. Aging demographics trends in the U.S. and across the world should drive demand for the types of surgical procedures for which Intuitive's da Vinci system is ideally suited. Intuitive also continues to introduce innovative new products that expand the types of procedures for which robotic surgical assistance adds value. 

Risks

I'd be remiss if I didn't point out the risks that these three stocks face. The obvious risk for Axsome Therapeutics is that it could fail to secure FDA approval for AXS-05. Even if the drug is approved, Axsome's commercial launch potentially could go worse than expected.

As mentioned earlier, Guardant Health faces competition. The company also hopes to secure FDA clearance for Guarant360. Failure to do so would hurt the stock.

Intuitive Surgical is the least risky of these three stocks, but it isn't risk-free. New rivals, notably including giant medical device maker Medtronic, plan to challenge the company's dominance in the robotic surgical systems market.

Despite these risks, though, I think that Axsome, Guardant Health, and Intuitive Surgical are great healthcare stocks to buy in January and hold for many Januaries to come.

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Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
ISRG
$229.16 (2.62%) $5.86
Guardant Health, Inc. Stock Quote
Guardant Health, Inc.
GH
$43.00 (11.63%) $4.48
Axsome Therapeutics, Inc. Stock Quote
Axsome Therapeutics, Inc.
AXSM
$26.46 (9.66%) $2.33
Medtronic plc Stock Quote
Medtronic plc
MDT
$99.08 (-0.36%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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