Most financial news isn't created with the purpose of producing good investment decisions. It is designed to provide information in an engaging way while creating a constant sense of needing to act. This year offers plenty of examples. The latest is the recent initial public offering of Robinhood Markets (HOOD -1.10%), the online brokerage that positions itself as the platform of the people. Is it a greedy company manipulating inexperienced investors or the future of finance for the internet generation? There are strong opinions on both sides of the argument.
But there is no penalty for skipping the debate. As investors, we can simply ignore the complicated stocks and focus on companies that are easier to understand. To that end, three Fool contributors were asked to highlight one healthcare company they think is a better buy than Robinhood. They chose Inari Medical (NARI -0.29%), AbbVie (ABBV -0.30%), and Illumina (ILMN -1.48%). Here's why.
Image source: Getty Images.
Cheaper and better for patients, doctors, and hospitals
Jason Hawthorne (Inari Medical): Inari Medical has a simple business. It develops disposable devices to treat venous diseases (e.g., clots) like deep vein thrombosis and pulmonary embolisms. Because these often fail to respond to drugs, and those drugs can be expensive and dangerous for patients, the $3.8 billion market was ripe for a simple alternative.
Inari has replaced multiple procedures and overnight stays in the intensive care unit with single, short sessions of less than an hour. Tack on fewer ICU admissions and a shorter overall length of hospital stay and you end up with lower costs, too. That's an obvious win for patients but it benefits doctors and health systems as well. Based on the national average of Medicare reimbursement rates, Inari's approach makes money-losing procedures profitable by significantly reducing the overall cost.
That's led to torrid growth since going public in May 2020. In the four quarterly earnings reports since, the company has posted year-over-year revenue growth of 152%, 172%, 144%, and 113%. It's been profitable in every quarter as a public company except its first. And that was at the height of the pandemic. The stock has climbed 122% since its initial public offering.
With growth like that, it's understandable that one of the company's primary goals is to expand its sales force. After all, transitioning physicians away from the costly, riskier approach requires specialized sales people to demonstrate the devices and train the potential users.
Any company doubling sales each year is likely to have a volatile stock, and Inari is no different. But ignoring the financial media -- along with its obsession over quarterly numbers and today's share price -- is the best way to stay focused on the long term. That's where the potential of a business like Inari will truly shine. The company has an easy to understand business with a lot of room for growth. Unlike Robinhood, I feel confident that Inari is good for customers and shareholders alike.
A superior dividend play
Rachel Warren (AbbVie): If you're searching for a stock that can yield consistent, generous returns for your portfolio, AbbVie is another no-brainer pick to add to your buy basket.
AbbVie, which was spun off from Abbott Laboratories in 2013, has a stable track record of annual revenue increases to its name. For example, in 2016, 2017, 2018, and 2019, the company reported respective net revenue growth of 12%, 10%, 16%, and 2%. And in 2020, AbbVie reported that its revenue surged by an eye-popping 38% compared to the previous year.
The company has delivered robust financial growth in both of the quarters it's reported so far for fiscal 2021. Its net revenue popped 51% in the first quarter and 34% in the second quarter from the year-ago periods.
AbbVie's mega-blockbuster drug Humira has remained the top-selling product in its portfolio year after year, amassing billions upon billions of dollars in annual revenue. In 2020 alone, Humira raked in net revenue of about $19.8 billion, and AbbVie's total net revenue for the year was just shy of $46 billion.
While Humira will relinquish its U.S. patent exclusivity in 2023, its authority as an established brand name and longstanding status as the best-selling drug in the world should continue to drive notable revenue growth for AbbVie. In addition, AbbVie is generating more and more of its revenue from other blockbuster drugs like Skyrizi, Rinvoq, and Imbruvica, as well as products that it acquired in its 2020 acquisition of Allergan, such as Botox Cosmetic and Botox Therapeutic.
Investors can certainly look to AbbVie for steady portfolio growth in the form of share price gains. Over the past five years, the stock has risen by around 70%. The pharmaceutical stock is also one of a special group of stocks called Dividend Aristocrats. With a premium yield of 4.6% at the time of this writing, AbbVie's dividend more than outpaces that of the average stock trading on the S&P 500, which typically yields around 2%.
From its healthy track record of balance sheet growth to its impressive portfolio of brands and medicines and its mouth-watering dividend, AbbVie is a healthcare stock you can truly buy and hold forever.
A dominant industry leader changing healthcare as we know it
Steve Ditto (Illumina): If you're looking for industries and companies that could outperform over the next 10 years, there are few better to consider than DNA sequencing company Illumina.
Illumina is the industry leader in using DNA sequencing for genetic research, testing, and medical treatment. With an installed base of more than 17,000 sequencing systems, Illumina holds more than 90% of the global market.
This level of industry dominance has led to outstanding stock market performance. Over the last 10 years, Illumina had a total market return of 862% versus 348% for the S&P 500. Illumina could do even better over the next 10 years.
Illumina and the sequencing market have strong tailwinds. Technology advancements are dramatically improving the cost, accuracy, and turnaround time of DNA sequencing. These advancements have made their way from the research lab into hospitals where they have the potential to change the way healthcare is delivered.
About one in five "healthy" adults carry disease-related genetic mutations. It's now possible for someone to visit the doctor at the first sign of a potential issue, be tested, have their genome sequenced, arrive at a definitive diagnosis, receive a specific treatment, and have symptoms subside within days.
That scenario is one big catalyst for why sequencing volumes are projected to increase more than 10 times over the next three years. Some longtime industry observers say we are on the cusp of a genomic revolution.
These trends are showing up in Illumina's recent results. For the second quarter in a row, it generated more than $1 billion in revenue and exceeded top- and bottom-line expectations. On the Q2 earnings call, CEO Francis deSouza said the company is "firing on all cylinders."
Illumina has a market cap of $73 billion. If it performs as well over the next decade as it has for the past 10 years, that could grow to $250 billion. That seems feasible when you compare it to other dominant technology companies like the FAANG stocks. For long-term buy-and-hold investors looking to outperform Robinhood and the rest of the stock market, that would make shares of Illumina a good addition to any portfolio.
