When it comes to stability, large-cap healthcare stocks have a lot to offer. People will always need medical care, and to get it, they'll need major healthcare companies to keep doing what they do best.
Investors who are willing to play the long game stand to benefit the most from buying shares of healthcare giants. And for those who are happy to wait for their returns to accrue over time, there's more than a few stocks to choose from. Let's examine three of the leading candidates.
With its coronavirus vaccine called Comirnaty making more than $13 billion in the third quarter alone, Pfizer (PFE 0.90%) is a company that needs no introduction. Thanks to sales of its medicines, over the last 10 years its quarterly revenue has grown by more than 102%, and its quarterly free cash flow (FCF) by 129.8%. And now that the company will likely have some of its revenue from Comirnaty on a recurring basis, the proposition for investors is a bit sweeter than before.
Churning out successful medicines time and time again is at the crux of Pfizer's value proposition to shareholders, and there's no reason to expect things to change now that its income is skyrocketing. And with strong growth in its cash flows, it's no surprise that Pfizer has consistently increased its dividend for 12 years and running. Right now, its forward annual dividend yield is 2.71%, which isn't half bad. Though there aren't any share repurchases scheduled for the rest of this year, it does have $5.3 billion authorized for repurchasing from a previous run.
Still, Pfizer hasn't always outperformed the market, and it might not do so moving forward either. So, it's probably a better stock to consider using as a defensive or conservative holding rather than one for growth, even if its recent performance keeps sizzling.
As a generic drugmaker, Viatris (VTRS -0.84%) is a stock that you shouldn't even consider holding unless you're willing to do so for the long term. Just over a year after its split from Pfizer as Upjohn and merger with Mylan, things are still in transition, and that means it's selling at a bargain. Whereas the generics industry as a whole has an average trailing price-to-sales (P/S) ratio of 4.95, Viatris' P/S is a mere 0.83.
As Viatris finishes consolidating its operations from the spinoff, it'll be focusing on realizing cost synergies and repaying debt through 2023. Then, it'll pivot into its long-term growth strategy by pushing hard to expand its portfolio of complex generics and biosimilar drugs. After that pivot is when returns for investors are likely to take off.
Each new medicine in its roster could yield revenue for years and years, especially for core mass-market branded generics like Lipitor, which has already brought in more than $1.27 billion in sales this year so far. Management has signaled that everything from stock buybacks to dividend hikes are on the table once the company has de-leveraged and returned to focus on growth. Once Viatris is raking in even more recurring revenue from persistent sales of its drugs, early investors will be the biggest beneficiaries.
3. Abbott Laboratories
Abbott Laboratories (ABT 0.26%) is another slow-burning healthcare stock that's a worthy contributor to most portfolios, but it's also the company on this list that's grown the most in the last decade. With a 10-year total return of almost 550%, Abbott Labs crushed the market's return of 356% in the same period, and it might even do the same through 2031.
Part of the appeal of Abbott is that the company makes most of the goods that healthcare systems cannot do without, including branded generic drugs, medical nutrition drinks, glucose monitors, surgical tools, diagnostic tests, and more. Such a broad collection of products means that it's effectively impossible for any single competitor to gobble up a significant portion of its revenue base. And regular investment in research and development means that its top line is always growing, even if it isn't doing so very rapidly at any given point.
The long-hold appeal of Abbott stems from its never-ending annual dividend hikes, which have occurred like clockwork for each of the last 50 years. While its forward dividend yield is only 1.39% right now, consistent increases in the payout are a given, and they add up significantly over time.