High inflation, two consecutive quarters of negative U.S. gross domestic product growth, and receding consumer confidence don't bode well for the near-term economic outlook.
This raises the following question: How can investors best prepare their portfolio for a difficult economy? The answer lies in focusing on buying quality stocks in sectors that are essential. And few sectors are as critical to life as healthcare, regardless of economic conditions. Let's dive into two healthcare stocks that appear to be great buy-and-hold candidates for the long run.
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1. Cigna
Cigna's (CI -0.10%) $87 billion market capitalization and customer base of 190 million in over 30 countries make it the fourth largest health insurer in the world.
Thanks to an aging global population and rising healthcare costs, demand for the global health insurance industry should grow in the years ahead. This is reflected by the market research firm Global Market Insights' expectation of 4.6% annual growth in the industry, from $2.8 trillion in 2020 to $3.9 trillion by 2027.
Cigna reported $174.1 billion in total revenue in 2021 -- up 8.5% from the year-ago period. Against the $7 billion in earnings recorded in 2021, this equates to a net margin of 4% in 2021. And the company should benefit from increased profitability from this rising worldwide demand for health insurance benefits. That's why analysts believe that Cigna's non-GAAP (adjusted) earnings per share (EPS) will grow at 11.5% each year through the next five years.
If these strong growth prospects weren't enough, the company also yields 1.7%. For context, the S&P 500 index yields 1.6%. And investors can have confidence that Cigna will also deliver market-beating, double-digit annual dividend growth for the foreseeable future. That's because the company's dividend payout ratio will be a tad under 20% in 2022.
The cherry on top is that Cigna is cheap for its growth potential. This is supported by the fact that the stock's forward price-to-earnings (P/E) ratio is just 12, which is well below the healthcare plan industry average forward P/E ratio of 16.3. This arguably makes Cigna a blue-chip worth buying.
2. Bristol-Myers Squibb
Global medicines spending topped $1.4 trillion in 2021. And it's anticipated that mid-single-digit annual spending growth will continue through 2026, with spending reaching nearly $1.8 trillion by that time. As one of the largest pharma companies in the world, Bristol-Myers Squibb (BMY -0.27%) will be a major beneficiary of increased medicines spending. For context, the company generated a whopping $46.4 billion in revenue in 2021.
The company's commercial drug portfolio included eight blockbusters in 2021 -- of which three were mega-blockbusters ($5 billion-plus in total sales). Bristol-Myers also appears to be ready to replace the eventual revenue declines from its older mega-blockbuster drugs with new drugs and its pipeline. The company has a drug pipeline of more than 50 compounds currently under development. This is why analysts believe that Bristol-Myers will produce 4.9% annual earnings growth over the next five years.
Better yet, the company yields a market-topping 3%. And based on Bristol-Myers' projected dividend payout ratio of 28.8%, the drug maker should have no issues raising its dividend in the future.
The icing on the cake is that the stock is trading at a cheap forward P/E ratio of just 9.8. That's significantly lower than the pharmaceutical industry's average forward P/E ratio of 13.3, which makes the stock an attractive pick for value and income investors.
