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3 Healthcare Stocks to Buy If You're Worried About a Market Crash

By Jason Hawthorne, Rachel Warren, and Steve Ditto – Dec 21, 2021 at 1:30PM

Key Points

  • Johnson & Johnson is making moves that should help it maintain its blue chip status.
  • Teladoc is a super-smart stock to buy on sale right now.
  • Vertex is using cash from a blockbuster drug to make big bets on the future.

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Just because the market is falling doesn't mean the best place for your money is under the mattress.

Throughout history, the world has been an endless source of worry for investors. But that doesn't mean you should abandon stocks. In fact, it may be the best reason to have a diversified portfolio of companies that succeed in different environments. The combination of fast-growing companies and blue chip dividend payers can provide stability when market sentiment swings from euphoria to despair and back again.

We asked three contributors for a healthcare company that offers a balance between risk and reward right now. The trio they offered checks several different boxes for a diversified portfolio, including growth, yield, and value. Here's why they think Johnson & Johnson (JNJ 1.01%), Teladoc Health (TDOC 3.43%) and Vertex Pharmaceuticals (VRTX 3.16%) can help calm the nerves of investors who are seeing red.

A person stashing stacks of cash under a mattress.

Image source: Getty Images.

Jason Hawthorne (Johnson & Johnson): The healthcare conglomerate is doing something many once considered unthinkable. It's breaking itself up -- sort of. The company is following in the footsteps of other giant pharma companies and jettisoning its slow-growth consumer healthcare business. That means that in a couple of years the company selling iconic brands like Band-Aid and Tylenol will not be called Johnson & Johnson. It might seem to contradict the company's long-held strategy of product and market diversification. But it makes sense.

Last year, its consumer health segment grew only 1%. That slow growth was nothing new. The drug division has been the engine of growth in recent years, and despite the struggles of the medical devices business -- sales were wrecked by the pandemic last year -- sales expansion is driven mostly by new products. And management has signaled excitement about what it has coming to the market. 

Business Unit





Consumer health





Medical devices










Data source: Johnson & Johnson.

In the most recent quarter, ending in September, sales of medical devices climbed 7%. That growth was driven almost exclusively outside the U.S. Another highlight was the 10,000th bronchoscopy procedure performed by its Monarch robotic platform. Management is counting on the device to cut into Intuitive Surgical's share of the robotic surgery market. A focus on faster-growing businesses might not be the only motivation for the breakup.

Skeptics would say the breakup is driven by management's desire to avoid the financial hit from the roughly 40,000 lawsuits alleging its talc products cause cancer. CEO Alex Gorsky -- who is stepping down next year -- said the litigation played no role in the decision. But the company offloaded its talc liabilities into a separate entity by taking advantage of a Texas merger law. It then moved the company to North Carolina and filed for bankruptcy. As part of the bankruptcy settlement, the company offered $2 billion toward the litigation. The company had previously earmarked $4 billion for this purpose.

Setting aside how you feel about the motivation behind the move, Johnson & Johnson's split from its consumer health unit accomplishes several goals that could set it up to continue compounding profits in the years ahead. With a price-to-earnings ratio of 25, investors are currently able to buy one of the most historically stable stocks around for less than the S&P 500 Index. Add in a dividend yield of 2.5% -- nearly twice that of the index -- thanks to a payout that has been increased 59 years in a row, and it becomes clear why a tidal wave of selling could spare this iconic brand. 

Rachel Warren (Teladoc): As the COVID-19 pandemic rages on and cases of the new omicron variant continue to rise globally on top of the already dominant delta variant, investors are understandably concerned that another correction or crash could be imminent. Whether this will be the case is anyone's guess.

But if you're looking for another healthcare stock to put on your buy list if the market takes a downturn, Teladoc is one compelling option. With more people delaying returns to the office and working from home indefinitely, and hospitals filling up once more as we head into the cold winter season, it's only logical that more people will be turning to telehealth once again as a means of getting affordable and quality healthcare in a safe and convenient way. 

Now, don't get me wrong. Teladoc has proven to be far more than a coronavirus play, even as society broadly reopened earlier this year and more people were going back to work and resuming everyday activities. In the first nine months of 2021, Teladoc's revenue jumped 108% from the same period in 2020, while total visits surged nearly 60% year over year.  

Teladoc's negative EBITDA and net income during this nine-month period ($72.3 million and $417.8 million, respectively) is attributable to stock-based compensation as well as other expenses related to its 2020 acquisition of fellow telehealth giant Livongo. On the flip side, the company is profitable on an adjusted EBITDA basis. Teladoc reported that its adjusted EBITDA for the first nine months of 2021 was just shy of $191 million, a considerable increase from the $76.5 million it reported in the same period in 2020.  

It's no secret that shares of Teladoc have come down considerably from its all-time high. Right now, the stock is trading down about 50% year to date. However, as the market continues to experience high volatility and concerns about the next phase of the pandemic linger, the stock may be showing signs of a much-anticipated rebound. Shares jumped higher than 10% on Friday, Dec. 17. 

For patient long-term investors looking to invest in a quality business on sale, Teladoc more than passes muster. And if you're looking for a resilient business to add to your basket right now, this healthcare stock is a smart option to consider.

Strong momentum over the last six months offers a port in the storm

Steve Ditto (Vertex): If you're worried about a market crash, Vertex may be the kind of company you need to ride out rough seas -- it's a profitable business with an exceptionally strong and durable franchise at an attractive price, with a product its customers literally can't live without.

Vertex has built its business by developing the leading treatment for cystic fibrosis. In Q3, Vertex grew revenue 29% year over year, and management upped year-end guidance to a range of $7.4 billion to $7.5 billion. Vertex ended the quarter with almost $7 billion in cash.

In addition to backing a market winner with a great core product, investing in Vertex is like being part of a venture fund with one really big winner in the portfolio and several promising opportunities lined up to drive future growth. Vertex is using its cash to fund a robust internal pipeline and partnerships with with a range of biotech companies.

One particularly promising relationship is with CRISPR Therapeutics (CRSP 0.67%), which is hoping to be first to market with a gene-editing treatment potentially worth billions. In Q3, Vertex expanded its CRISPR gene-editing technology investments, announcing new collaborations with Arbor Biotechnologies and Mammoth Biosciences. Vertex previously made bets on other companies with promising technologies like Affinia Therapeutics, Moderna (MRNA 0.98%), and Skyhawk Therapeutics. 

Despite all this business momentum, for much of the year the stock price has been under a lot of pressure due to concerns about narrowing growth opportunities and potential competition from AbbVie in the cystic fibrosis market. Management's "beat and raise" results of the last two quarters have muted those concerns and driven the stock price up more than 14% in the last six months compared to the S&P 500, which is up less than 12%. 

For long-term investors, including those concerned about a market crash, any uncertainty around Vertex is offset by the strength of the balance sheet, likely durability of future revenue streams, options for future growth from internal pipeline investments and external partnerships, and underlying support of a stock buyback program.

Jason Hawthorne owns Intuitive Surgical and Teladoc Health. Rachel Warren owns Johnson & Johnson and Teladoc Health. Steve Ditto owns CRISPR Therapeutics. The Motley Fool owns and recommends CRISPR Therapeutics, Intuitive Surgical, Teladoc Health, and Vertex Pharmaceuticals. The Motley Fool recommends Johnson & Johnson and Moderna Inc. 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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