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3 Healthcare Stocks That Could Double Next Year

By Jason Hawthorne, Rachel Warren, and Steve Ditto – Dec 10, 2021 at 2:02PM

Key Points

  • Align Technology has the hallmarks of other dominant healthcare businesses.
  • Intuitive Surgical is capitalizing on an incredible track record of growth and strong consumer demand.
  • Intellia is leading the CRISPR revolution and is building momentum.

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When the market looks uncertain investors should flock to industry leaders.

As the calendar turns and thoughts drift toward holiday plans and gift giving, investors have the opportunity to take stock of the past year and plan for the next. It's doubtful anyone could have predicted the craziness of special purpose acquisition companies (SPACs), meme stocks, non-fungible tokens, or alternative crypto assets this year. If you did, kudos to you! In 2022, stocks that stand head and shoulders above their peers might be a safer bet. They should benefit as the market gets back to rewarding great businesses and not just any asset in a hot industry.

That was the theme when three contributors to picked three stocks they thought could double in 2022. After a wild year, their answers were surprising. They chose Align Technology (ALGN -0.22%), Intuitive Surgical (ISRG -1.22%), and Intellia Therapeutics (NTLA -3.04%). Here's why.

Four people all holding sparklers that make 2022.

Image source: Getty Images.

Fast-growing high-quality businesses are hard to find

Jason Hawthorne (Align Technology): It may seem bold to think a stock trading at a price-to-earnings (P/E) ratio of 66 can double in the next year. But several factors have me extremely bullish on the maker of Invisalign clear teeth aligners. Despite climbing 350% since the March 2020 lows, both company-specific and market factors are paving the way for continued outstanding returns. 

First, the company brought in $2.4 billion in sales in 2019. That's before many of us were forced to see our faces -- and smiles -- on video calls all day, every day. The demand has management expecting to bring in at least $3.9 billion in sales this year. That's more than 27% annualized over the past two years. The number is squarely in the company's expected range of long-term growth between 20% and 30% annually. These days, it isn't hard to find companies expanding at that pace. But unlike other fast growers, Align boasts an EBIT margin -- the percentage of sales that it retains as earnings before interest and taxes -- similar to healthcare stalwarts Illumina and Intuitive Surgical. It's a business that doesn't just grow. It gushes cash.

Another similarity to those two is its dominant market position. In a clear aligner market expected to grow 28% annually this decade, the company holds about 80% market share, according to Fortune Business Insights. It generates more than five times the annual revenue as its closest competitor, Smile Direct Club. Still, most of the 21 million people who straighten their teeth each year rely on the old wire and bracket method. Factoring those in, Align holds only about 10% share. It's a huge opportunity and provides a long runway for growth.

The stock market has been volatile in the past few weeks. Shares of fast-growing companies were sold off and then suddenly reversed higher. This might look like the worst time to buy an "expensive" stock like Align. Yet, I think the market shakeout works in its favor. As investors begin to refocus on the quality of growing businesses, companies like Align will stand out. After all, it isn't easy to find an enterprise with substantial growth, generating a ton of earnings, and dominating a rapidly expanding industry. I believe that combination will keep investors flocking to the shares in 2022.

A little-known medical device stock that's changing the future of healthcare

Rachel Warren (Intuitive Surgical): While no one can predict the future, if you're looking for a high-flying healthcare stock with plenty of runway left to soar not just next year but in the years to come, Intuitive Surgical is hands-down one of my top picks to consider. The leader in surgical robotics has made a tremendous comeback from the sales declines it experienced in the earlier days of the pandemic when many procedures were deferred to make way for an onslaught of COVID-19 patient hospitalizations. 

In its most recent quarterly earnings release, Intuitive Surgical reported that worldwide procedures utilizing its flagship da Vinci Surgical System rose 20% year over year. Meanwhile, the company's revenue and net income increased by respective amounts of 30% and 21% from the year-ago period, totaling $1.4 billion and $381 million. Intuitive Surgical also reported that it installed 11% more systems and shipped 72% more systems out during the third quarter of 2021 than in the same quarter of 2020.  

Now, you might be thinking that these high rates of growth are due to the fact that Intuitive Surgical's business slowed at the height of the pandemic, leading to pretty robust year-over-year comparisons. But looking back over the past decade, the company has grown its annual revenue by an incredible 148%, while its annual net income has surged by more than 114%.  

Intuitive Surgical is also trading at a far more attainable stock price than it was just a few months ago. The company underwent a 3-for-1 stock split in early October. While the stock is still trading at a fairly robust valuation of 69 times trailing earnings at around $320 per share, a single share was running in the ballpark of $1,000 earlier this year. Over the past 10 years, the stock has delivered a total return of 567%.  

Intuitive Surgical's lucrative portfolio of products coupled with its dominance in the fast-growing field of robotic-assisted surgery make this a great stock to buy and hold in your basket for many years. It definitely doesn't seem a stretch of the imagination that this company could double or more over the next year at least. 

Catch this biotech before good news drives the next leg up

Steve Ditto (Intellia): In a June 26 press conference, Intellia and its partner Regeneron announced "the first-ever clinical data supporting safety and efficacy of in vivo (in the body) CRISPR genome editing in humans." That bland scientific statement was actually rocket fuel for Intellia stock, causing it to rise almost 70% following the announcement. 

The market reaction was based on the distinct possibility Intellia has successfully demonstrated a "one-and-done" procedure to treat and even cure some deadly genetic diseases. Intellia CEO John Leonard said the advancement "unlocks the door to treating a wide array of other genetic diseases with our modular platform, and we intend to move quickly to advance and expand our pipeline. With these data, we believe we are truly opening a new era of medicine." 

As is often the case with volatile biotech companies, the story had been a bit different over the past three months, with Intellia stock price now down by 30% from its summer highs. Likely reasons for the decline include general market conditions coupled with some very specific worries about the potential side effects of CRISPR gene-editing technology. Although Intellia has seen no significant safety issues to date, several researchers published concerns CRISPR could lead to a condition known as chromothripsis, which can cause cancer. The only way for Intellia to be sure its CRISPR therapies are safe is long-term studies, which likely caused many in the market to take a wait-and-see attitude.

In the meantime, as management promised, Intellia is marching on and even accelerating its progress with key pipeline candidates -- most notably NTLA-2001, which is being expanded to include patients with ATTR amyloidosis with cardiomyopathy (ATTR-CM).

For investors, this progress is notable for several reasons. First, it will provide a larger study population to determine if similar results can be achieved in a more complex and more prevalent condition. Second, it further proves the ability to tackle other conditions in the liver, which opens larger commercial opportunities. Third, it further demonstrates a non-viral method of introducing CRISPR editing into the body which is critical for long-term success. And finally, it will provide more evidence of the safety profile of CRISPR while treating fatal diseases, which is beneficial even if longer-term problems are encountered.

In the third-quarter earnings call, Intellia management committed to sharing interim clinical data from NTLA-2001 in the first quarter of 2022. These updates could provide a catalyst for the stock to rebound from its recent losses and more if results in larger populations mirror the results of the June announcement. 

Many investors may be asking themselves if this is the right time to invest to catch a potential double. The short answer is, yes. The CRISPR revolution is just getting started, Intellia is a market leader, and there will likely be many $100 billion companies in this space. Healthcare investors with a long-term buy-and-hold approach should consider getting on board now.

Jason Hawthorne owns Align Technology, Illumina, and Intuitive Surgical. Rachel Warren has no position in any of the stocks mentioned. Steve Ditto has no position in any of the stocks mentioned. The Motley Fool owns and recommends Align Technology and Intuitive Surgical. The Motley Fool recommends Illumina and recommends the following options: long January 2022 $193.33 calls on Intuitive Surgical and short January 2022 $200 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.

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