According to Verified Market Research, the global healthcare industry is worth $3.3 trillion today and could grow to $6.6 trillion by 2028. So you might want to consider having healthcare stocks in your portfolio, especially if you're a long-term investor.
The good news is that these companies come in all sorts of flavors, whether you're craving rapid growth or a big, fat dividend check. There seem to be a lot of good deals in the market these days. Here are three different types of healthcare stocks that stand out from the rest.
Growth stock: InMode
InMode (INMD 0.40%) builds medical equipment for minimally invasive, aesthetic medical procedures. The devices use a proprietary radio frequency (RF) technology to dissolve body fat under the face and skin. InMode's technology prevents many patients from undergoing plastic surgery, which is typically more expensive and can involve scarring or lengthy recovery.
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The company sells worldwide and has an installed device base of 10,350 units. InMode makes about 90% of its revenue from selling the equipment itself and another 10% in consumable products and machine servicing. Recurring revenue could become a more significant contributor over time as InMode's installment base grows.
InMode is also growing while maintaining profitability. In Q3 2021, the company expanded revenue 58% year over year (YOY) to $94 million and had a net income of $44.7 million. That's an impressive 47% net profit margin. Meanwhile, the stock's price-to-earnings ratio looks pretty reasonable at 27 for a profitable business growing this quickly. In the recent market correction, the stock has pulled back roughly 50% from its highs, giving investors a solid shot to acquire shares.
Dividend growth stock: Johnson & Johnson
Johnson & Johnson (JNJ 1.49%) is a healthcare conglomerate that offers investors a "little bit of everything" in the industry. It sells pharmaceutical drugs, medical devices, and consumer products. Revenue has grown at an average of 3% annually over the past decade; it's not a rapidly growing business, but it does enough to keep increasing its dividend.
Investors can take comfort in that dividend, which is one of the most reliable of any public company. Johnson & Johnson is a Dividend King, a stock that's paid and increased its dividend for 59 consecutive years. The company's balance sheet is rated AAA from the major credit bureaus, one of only two with that rating higher than even the U.S. government!
While there are no guarantees in life, Johnson & Johnson's 2.5% dividend yield comes pretty close. At the same time, investors should be aware that J&J is still dealing with lawsuits surrounding its role in the opioid epidemic as well as cancer claims in relation to its talcum powder.
The stock itself trades at a P/E ratio of 22, which might not be cheap considering InMode trades at a modest premium to that while growing far more rapidly. However, investors have often placed a more expensive valuation on Johnson & Johnson for its blue-chip quality and strong financials. The company is also planning to spin-off its consumer products business, which could unlock more value for shareholders as an independent company.
High dividend yield stock: AbbVie
AbbVie (ABBV 1.06%) is a pharmaceutical company that makes prescription products, including Botox and Humira (the world's top-selling drug). AbbVie's nearly $250 billion market cap makes it one of the pharmaceutical industry's biggest companies. Having size and deep pockets on its side can be an advantage in pharmaceuticals, where drugs cost many millions to develop and could fizzle out in the FDA approval process. AbbVie has an extensive pipeline that gives it many shots at finding that next "blockbuster" like Humira that brings in billions in revenue.
The company also has a long dividend history, going back to the days when it was a part of Abbott Labs before it was spun off in 2012. AbbVie's dividend yield is 4%, beating most bonds and savings account rates, and has also been raised aggressively by management, growing an average of 18% annually over the past five years. This combination of yield and growth makes AbbVie a dividend investor's potential dream stock.
Humira contributed 35% of the revenue in AbbVie's Q4 2021 and loses patent protection in 2023, allowing copycat generic drugs to enter the market. AbbVie's been working to make up for what will be an eventual drop in Humira sales, but the market has still discounted the stock ahead of this challenge. The shares trade at a P/E ratio of just 11, which seems cheap considering that AbbVie's 2021 earnings per share grew 20% over the prior year. If AbbVie's emerging drug products can eventually make up most of Humira's losses, the current valuation could be a great entry point for a long-term position.
