GE HealthCare Technologies (GEHC 0.12%) is a new healthcare business that spun off from General Electric earlier this year. The company is already profitable and has been busy pursuing multiple acquisitions. But can this be a stock that produces strong enough returns to make you a millionaire by the time you retire (assuming that you have 20-plus investing years left)?
Let's take a closer look and see whether it's worth buying and holding shares of GE HealthCare.
Why GE HealthCare can make for a great long-term buy
What is attractive about GE HealthCare's business is that its operations are diverse, giving it many different ways to expand down the road. It generates revenue from imaging, ultrasound devices, patient care solutions, and pharmaceutical diagnostics.
Since going public in January, the company has already released strong earnings results. In 2022, GE HealthCare's sales totaled $18.3 billion and rose by 4.3% year over year. Its profitability did take a hit on higher costs; operating income of $2.5 billion fell by 10%. But in terms of revenue, it was still 14% of the top line, which is a solid margin overall.
This year, the business expects its organic revenue to rise between 5% and 7%. And one thing that can help pad those gains even further are acquisitions. GE HealthCare has already been involved in multiple deals so far this year, one of which includes plans to acquire Imactis, a company that makes a computed tomography (CT) navigational system. Last month, it also announced it would be buying Caption Health, whose artificial intelligence capabilities can help aid with ultrasounds.
GE HealthCare looks like a solid business that can generate consistent, single-digit growth over the years. And that can set investors up for some attractive gains.
How much of a return can investors expect from the stock?
Projecting future returns can be difficult but there's a reasonable range that I think can be made for a promising stock such as GE HealthCare. For starters, I wouldn't expect that the type of single-digit growth the company is expecting would be sufficient to outperform the S&P 500, which has historically averaged returns of about 10% per year.
Two medical device companies that may be helpful comparisons are Abbott Laboratories and Medtronic. Over the past 10 years, they have generated returns of 180% and 70%, respectively. Those gains average out to compound annual returns of 10.8% (Abbott) and 5.4% (Medtronic). Abbott is the more diversified business of the two and so it might serve as the better comparison. But to be on the conservative side, I would deduct a few percentage points and say that an 8% annual return might be a reasonable projection for GE HealthCare over the long run.
At an average gain of 8% per year, a stock would rise to more than four times its value over a 20-year span. That means you would need to invest more than $215,000 into GE HealthCare stock today to get to $1 million by then. Even if you expand the window to 25 years, the necessary investment would still be fairly significant at over $146,000. Given the high buy-in that would be necessary for either scenario, which I wouldn't expect most investors to be able to justify on the new healthcare stock, the conclusion is pretty clear.
GE HealthCare likely won't make you a millionaire
GE HealthCare could be an attractive investment, but unless it becomes an acquisition beast like Thermo Fisher Scientific (its gains total more than 600% over the past decade), then I don't see it as being probable for the stock to generate the types of returns that would be necessary for a modest investment (e.g., $25,000 or less) in the company today to grow to $1 million by retirement.
Overall, GE HealthCare shows potential to be a good buy for the long term, but it isn't a stock I would expect can make you a millionaire without investing a boatload of money.
