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3 Healthcare Stocks That Could Help Make You a Fortune

By Kody Kester – Dec 20, 2021 at 6:15AM

Key Points

  • Medtronic will benefit from growing demand within the medical devices industry.
  • Pfizer is poised to cash in on the steadily compounding pharma industry.
  • CVS Health should be lifted by increasing U.S. retail prescription volumes and the rapidly growing global health insurance industry.

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These three stocks are leaders in their respective fields within the vast healthcare industry.

It isn't a stretch to argue that the world literally can't live without the steady innovation taking place throughout the healthcare industry. The world is aging, and more people are being diagnosed with chronic conditions such as diabetes and heart disease. This is exactly why the Organisation for Economic Cooperation and Development (OECD) anticipates that healthcare spending as a proportion of GDP in developed nations will grow from an average of 8.8% in 2018 to 10.2% by 2030.

Here are three dividend-paying healthcare stocks to ride the wave of this megatrend, which could make investors rich over the long haul.

Two people sitting on the floor with one person holding a stack of money while the other person writes on a notepad.

Image source: Getty Images.

1. Medtronic

The first healthcare stock that could make investors a fortune is the $138 billion (by market capitalization) medical devices maker Medtronic (MDT 2.32%). Medtronic has operations in 150 countries throughout the world and owns a product portfolio that treats more than 70 health conditions, such as diabetes, Parkinson's, and various heart issues.

Medtronic's broad diversification should bode well for the company, especially given that the medical devices industry will likely experience significant growth in the coming years. KPMG anticipates that global medical devices spending will grow over 5% annually, from $483 billion last year to $795 billion by 2030.

That's why analysts are forecasting Medtronic will generate 11% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth over the next five years. Given that Medtronic trades at a forward P/E ratio of just 17 when compared to the medical equipment industry P/E ratio of 42, the company looks to be a great long-term buy at this time.

To bolster the case for Medtronic even more, the stock offers investors a market-beating 2.4% payout that has grown for 44 years straight. This puts Medtronic in the Dividend Aristocrats, highly respected S&P 500 components that have raised their dividends for at least 25 years in a row. 

2. Pfizer

The next healthcare stock that could be a lucrative investment, in the long run, is the pharma stock Pfizer (PFE 0.52%). Outside of Pfizer's dominance in the COVID-19 vaccine space and its expected leadership in the oral COVID-19 pill market, the company has a variety of blockbuster drugs in its portfolio. These include the anticoagulant drug co-owned with Bristol Myers Squibb (BMY 1.04%) known as Eliquis, the breast cancer drug Ibrance, and Vyndaqel and Vyndamax, which treat rare heart disease.

Excluding Pfizer's $24.3 billion in year-to-date Comirnaty sales, the company's year-to-date net revenue is up 10.4% year over year on its portfolio of drugs and other vaccines, to $33.4 billion. This suggests that Pfizer has a strong enough portfolio even without its COVID-19 products. And it gets even better for the company. That's because the pharma industry is expected to grow from $1.3 trillion in global spending last year to $1.6 trillion by 2025. This promising industry outlook, combined with Pfizer's robust fundamentals, explains why analysts are projecting more than 20% annual earnings growth over the next five years.

Throw in that Pfizer is trading at a forward P/E ratio of 10.3 relative to the pharma industry ratio of 21.4 and offers a safe 2.8% dividend yield, and it's easy to understand why this stock could be a solid pick. 

3. CVS Health

The final healthcare stock that could meaningfully enrich shareholders in years to come is the pharmacy chain and health insurer CVS Health (CVS 1.23%). Unlike the previous two stocks, CVS Health actually benefits from two trends in the healthcare industry.

First, the number of retail prescriptions being filled in the U.S. should increase from 4.7 billion this year to 5 billion by 2025. Since CVS Health is the leader in filling prescriptions in the U.S., no company will benefit more from this.

Secondly, CVS Health owns the health insurer Aetna and makes money by collecting more in premiums from its customers than it pays out on claims by those customers. And with the global health insurance industry set to grow 5.5% annually from $1.9 trillion this year to $3 trillion by 2028, CVS Health is one of the companies that stands to gain the most from this trend as well.

This is why analysts project CVS Health's non-GAAP EPS will compound 6% annually for the next five years. At a forward P/E ratio of just 12, the stock is trading at an attractive valuation. And income investors can pick up a 2.2% yield to boot while they wait for CVS Health stock to make them much richer. 

Kody Kester owns Bristol Myers Squibb, CVS Health, Medtronic, and Pfizer. The Motley Fool owns and recommends Bristol Myers Squibb. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

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