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2 Healthcare Stocks You Can Buy and Hold for the Next Decade

By Prosper Junior Bakiny – Aug 7, 2022 at 9:37AM

Key Points

  • The healthcare industry is poised to continue expanding for a long time.
  • Merck's key product still has room to grow while it develops newer ones.
  • HCA will continue to be a leader in its field as it opens and runs more facilities.

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Although they have moved in opposite directions this year, these two stocks should outperform for much of the next decade.

Secular tailwinds should help propel the already massive healthcare sector in the next decade and beyond, including demographic trends. Estimates have it that people over 60 will make up 22% of the world's population by 2050, compared to just 12% as of 2015. The elderly tend to consume more medical products, meaning sales of various healthcare goods and services are on a solid upward trajectory.

That makes the industry a relatively attractive target for investors focused on the long game. Which healthcare companies should investors consider? Let's look at two excellent picks: Merck (MRK -0.16%) and HCA Healthcare (HCA -1.19%).

MRK Chart

MRK data by YCharts.

1. Merck

Some investors may perceive Merck as a one-trick pony due to its reliance on cancer drug Keytruda. During the second quarter, sales of this product made up about 36% of the drugmaker's total revenue. Perhaps Merck lacks diversification, but Keytruda will keep driving its top line higher until it loses patent exclusivity in 2028. After all, the medicine continues to gain regulatory approvals in new indications, which helps improve its sales. Keytruda has won over 30 indications in the U.S. alone -- the most of any cancer medicine.

By the end of 2024, Merck expects Keytruda's patient count to double to 2 million, after recently hitting the 1 million mark. In the second quarter, Keytruda's sales jumped by 26% year over year to $5.3 billion. Merck's total revenue improved by an impressive 28% compared to the year-ago period -- despite the meaningful impact of foreign exchange rates -- clocking in at $14.6 billion.

Plus, the company has other products helping it perform well. HPV vaccines Gardasil and Gardasil 9 delivered combined sales of $1.7 billion, 36% higher than the prior-year quarter. Revenue from cancer medicines Lynparza and Lenvima saw notable increases.

Merck has several dozen ongoing clinical trials -- particularly in oncology, one of the largest and fastest-growing therapeutic areas in the pharmaceutical industry. The company is working on a subcutaneous formulation of Keytruda, which could help extend its patent exclusivity. The drugmaker should welcome multiple new products to its lineup well before Keytruda starts facing generic competition.

Merck is also one of the leading animal health companies in the world. In the second quarter, sales from this unit remained more or less flat at $1.5 billion compared to the year-ago period. The animal health market is on an upward trend, too, thanks to population growth and the increased need for products to care for livestock. Merck should benefit from that in the long run. The current macro challenges have done little to slow the company's progress.

Doctors won't stop prescribing lifesaving medicines even if the economy tanks. Merck's stock can continue beating the market throughout these challenging times and beyond. 

2. HCA Healthcare 

HCA Healthcare is a leading hospital chain operator. It has generally sought to increase its market share and revenue by broadening its facilities and helping physicians better serve their patients. A growing number and types of hospitals form an attractive network for all those involved in this market: patients, healthcare workers, and government and private sector payers. The occupancy levels and procedures that form the basis of HCA Healthcare's revenue will sometimes fluctuate based on external factors.

During the worst of the pandemic, many saw medical facilities as hotbeds of COVID-19 cases, leading people to turn to other options to address their non-urgent health-related needs. HCA Healthcare is currently dealing with economic issues that are impacting various aspects of its business, including labor market shortages and inflation, which is sending the company's costs higher than they otherwise would be.

But those headwinds are temporary. In the long run, HCA Healthcare will continue to invest in opening new facilities, among other initiatives, and that should allow it to keep making progress and gaining market share. In the first quarter, HCA Healthcare's revenue increased by only about 2.6% to $14.8 billion. The company's adjusted net earnings per share decreased to $4.21, down from the $4.37 per share reported during the year-ago period.

HCA Healthcare's results looked unimpressive in a vacuum, but with the economic challenges it faces, they were actually pretty good, which is why its shares jumped on the heels of its quarterly update. HCA Healthcare could encounter more challenges in the short run, but the company's long-term prospects are attractive due to its leadership in its field, successful investing strategies, and the tailwinds that will affect the healthcare sector.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck & Co. The Motley Fool recommends HCA Healthcare. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$86.64 (-0.16%) $0.14
HCA Healthcare, Inc. Stock Quote
HCA Healthcare, Inc.
$187.68 (-1.19%) $-2.26

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