Investors love healthcare stocks in both bull markets and times of uncertainty, but not all investments are slam-dunks. Further, a stock that's perfect for one investor might not be suitable for another, so any no-brainers have to match your specific situation.
The following three healthcare-related stocks have a handful of specific characteristics that make them great candidates to fulfill different roles in your investment portfolio.
1. CVS
CVS Health (CVS +3.11%) is a diverse healthcare company that operates a chain of drugstores, a pharmacy benefits management business, and a major health insurance carrier since its 2017 acquisition of Aetna. This stock isn't a dynamic biotech that will quadruple overnight, but it's a fundamentally strong value stock that can bring stability and income to your portfolio. Those characteristics can be especially desirable to retirees and risk-averse investors.
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No segment contributed more than 56% of CVS' total revenue in the first half of 2021. That diversification creates a business that's more difficult to disrupt, so cash flows are more predictable. CVS is also considered a defensive stock, because the demand for its products and services doesn't fluctuate much with economic cycles.
CVS Health's limited growth potential and very modest valuation make this a quintessential value stock. It trades at a forward P/E ratio of only 10.5 and price-to-book ratio of 1.5. These are exceptionally low valuation ratios in the current stock market for companies that aren't distressed. CVS also pays an attractive 2.3% dividend yield, and the low 36.6% payout ratio indicates that the company produces more than enough profit and cash flow to support and grow the dividend.
CVS won't be the stock delivering the most growth in your portfolio. However, it's a no-brainer due to its stable operations and reliable cash flows that are distributed to investors each quarter.
2. Veeva Systems
Veeva Systems (VEEV 1.98%) is a great healthcare stock for growth investors who don't want to be too speculative in our current high-valuation market. Veeva provides cloud software solutions to life sciences organizations, such as pharmaceutical and biotech companies. Its product suite is essential in clinical data management, regulatory compliance, and customer relationship management.
Veeva is exciting due to its sheer dominance of a high-growth niche. Potential major competitors in the cloud software industry don't share Veeva's focus and expertise in life sciences. Direct competitors in the same market niche are all substantially smaller, putting them at a disadvantage. The company reports revenue retention above 100%, meaning that customers are not only choosing to remain with Veeva, but they are expanding their relationship across different product lines.
Veeva has become an integral part of operations for a number of high-profile customers, and its market leadership appears secure. The global branded pharmaceutical and biotechnology industry is expected to grow more than 10% on average over the next decade. As the unrivaled leader, Veeva should reap the benefits.
The only caveat here is the stock's relatively high valuation. Veeva Systems' forward P/E ratio above 70 is high, even adjusting for its strong growth forecast. As a result, this growth stock is most suitable for investors seeking long-term upside potential. It's likely to be more volatile in the short term than value stocks such as CVS, so make sure that your investment portfolio is set up to withstand those price fluctuations.
3. LTC Properties
LTC Properties (LTC +0.13%) is a REIT that owns 179 properties that are used for senior healthcare. Roughly 100 of its properties are assisted living facilities, with the remainder being skilled nursing. The REIT generates income from mortgage interest and leasing properties to care providers. While LTC Properties doesn't participate directly in the provision of healthcare or development of medical technologies, it's still driven by many of the same demographic and economic trends.
LTC has endured a difficult time during the pandemic. Its facilities serve some of the people most at risk of severe health problems associated with COVID-19, and several high-profile cases of outbreaks in elder care facilities made people skeptical about the safety in those homes. LTC Properties' rental revenue dropped more than 20% for the full-year 2020.
Nevertheless, the REIT maintained its $0.19 per share monthly distribution last year, and it has returned to revenue growth so far in 2021. The REIT's funds from operations (FFO) in the second quarter were equal to the shareholder dividends in those three months. An aging population and rising life expectancy will drive demand for long-term care, and that industry is forecast to grow nearly 7% annually over the next five years. LTC Properties could be one of the largest beneficiaries of that trend, as a growing patient population creates bigger cash flows that will eventually filter to owners of medical facilities. Like CVS, LTC Properties can't be considered a growth investment. This is strictly an income play, and it is worth a look for retirees.
