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Have $600 and 10 Years to Wait? Park It in These 3 Top Stocks

By Cory Renauer - Dec 29, 2020 at 7:51AM

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Here are three great stocks positioned to outperform for patient investors.

Are you in line to receive a $600 stimulus check you don't need right now? If so, you should think about backing that extra cash into one of these top healthcare stocks.

During the coronavirus pandemic, we've seen how successful healthcare companies can thrive during economic circumstances that crush most businesses. AbbVie ( ABBV 0.79% ), CVS Health ( CVS 1.81% ), and Teladoc Health ( TDOC -1.95% ) operate in different corners of the healthcare sector, but they're all positioned to outperform for patient investors. 

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1. AbbVie

This company's doing everything it can to offset competitive pressure for its top-selling immunology drug, Humira. The strategy is working. Despite biosimilar competition for Humira in the EU, bounding U.S. sales of the same drug and a pair of more recently launched treatments pushed total immunology portfolio sales about 15% higher year over year in the third quarter

The recent acquisition of Allergan and its Botox portfolio added some growing revenue streams that reduced AbbVie's reliance on Humira to just 45% of total revenue at the moment. Sales of Skyrizi, a new treatment for psoriasis, and Rinvoq, a new treatment for rheumatoid arthritis, are rising quickly enough to offset biosimilar competition for Humira that's expected to begin in a few years. Rinvoq and Skyrizi launched in 2019 and they're already generating around $2.6 billion in combined annual revenue.

The stock offers a juicy 5.2% dividend yield at recent prices, and successful new drug launches put AbbVie in a position to raise its payout significantly over the next decade. AbbVie has more than tripled its dividend payout since 2013. Investors buying the stock now can reasonably expect their payouts to keep soaring in the decade ahead.

2. CVS Health

While you're probably not far from one of CVS' 9,900 retail pharmacy locations, you might not realize the company also manages pharmacy benefits for health plan sponsors that cover about 103 million members. Through the acquisition of Aetna in 2018, the company also manages health insurance benefits for around 33 million people.

It's hard to measure all the ways bringing associated healthcare services under the same umbrella allows CVS Health to stay a step ahead of smaller, less diversified competitors. We can see in the numbers, though, the strategy is designed to work out well for investors in good times and bad.

Back in February, CVS Health was expecting adjusted earnings to reach between $7.04 and $7.17 per share this year. That was before the coronavirus pandemic raised its ugly head. Despite COVID-19 challenges, CVS Health raised its bottom-line expectation for 2020 to a range between $7.35 and $7.45 per share this November.

At recent prices, this healthcare stock offers a nice 2.9% dividend yield that will bound much higher over the next decade. The company has frozen its payout in place to help pay down debt incurred to acquire its health benefits business, but patients investors should be well rewarded. CVS Health's operations generated a whopping $12.6 billion in free cash flow over the past year, which was enough to cover its dividend obligation about five times over. 

Lab technicians working in protective gear.

Image source: Getty Images.

3. Teladoc Health

This company's one of many jostling for a leading share of the enormous market for telehealth services. Thanks to the acquisition of Livongo Health earlier this year, though, Teladoc Health has the best shot at remaining the leading facilitator of medical services at a distance. That's because Livongo's leading an effort to address America's chronic care crisis. 

Around half of all Americans live with a chronic disease. Caring for these conditions represents an estimated 86 cents of every dollar spent on healthcare. Sadly, the medical community at large still isn't up to speed when it comes to managing chronic conditions like diabetes, asthma, and hypertension so they don't lead to expensive hospitalizations. That's where Teladoc comes in.

Healthcare plan sponsors are quickly catching on to the fact that hiring Livongo to help employees manage chronic conditions costs less than expecting them to manage their conditions on their own. 

Since merging with Livongo, Teladoc employer clients have been eager to add Livongo services. The company has only scratched the surface. As the clear leader in a market with lots of room to grow, this stock could deliver tremendous gains over the long run.

They don't always go straight up

While all three of these companies have the means to drive their bottom lines steadily higher in the coming decade, stocks never rise in a straight line for very long. These companies have what it takes to outperform for you, but not if you cut and run before they get a chance to prove themselves.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
$100.06 (-1.95%) $-1.99
CVS Health Corporation Stock Quote
CVS Health Corporation
$94.79 (1.81%) $1.69
AbbVie Inc. Stock Quote
AbbVie Inc.
$122.83 (0.79%) $0.96

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

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