The healthcare industry is diverse and complex, with longtime staples and emerging disruptors to fit your portfolio -- and it also doesn't need to cost an arm and a leg. Plenty of stocks are trading for less than $100 per share right now. That means you can steadily accumulate little pieces of some of the world's greatest companies for less than the price of a dinner at a decent restaurant.
Here are several possibilities to consider, each playing a different role in the healthcare system. If all goes well, your future self will thank you.
1. Pfizer
Pharmaceutical companies are a critical component of healthcare. In an industry where size matters, Pfizer (PFE 0.28%) is one of the industry's most prominent players, with a market cap of over $200 billion. It's behind numerous prescription drugs, including the best-selling COVID-19 vaccine during the pandemic.
COVID-19 was a humanitarian crisis, but it was also a windfall for Pfizer. The company's annual revenue nearly doubled from pre-pandemic levels, to more than $92 billion. Now that the pandemic is ebbing, Wall Street has cooled on Pfizer, and the stock is down 38% from its former high.
However, Pfizer is no flash in the pan, and it's using its pandemic profits to invest in the business for long-term growth. That includes its pending $43 billion acquisition of Seagen, a staggeringly large deal which will give it rights to the smaller company's oncology pipeline. Pfizer's goal is to add $25 billion in incremental revenue over the coming years.
The stock is valued today at a price-to-earnings ratio (P/E) of 11, and analysts estimate earnings could average 9% annual growth over the next few years. Potential contributions from Seagen could add to that, so Pfizer seems like an overlooked pharmaceutical old-timer learning new tricks. The company's generous dividend doesn't hurt either -- it offers a 4.25% yield at the current share price.
2. CVS Health Corporation
If you live in the United States, you've probably been to one of CVS Health's (CVS -0.22%) many pharmacies to pick up a prescription, or maybe just a pack of diapers or a quick snack. There's a lot more to CVS today, though. The company has invested heavily to become more diversified. It scooped up health insurer Aetna Health in 2017 and, more recently, Oak Street Health, a network of primary-care centers.
Think about the different steps through the healthcare system. A patient gets sick, consults a doctor or other healthcare professional, then receives medicine. Instead of being there for only one step as a pharmacy, CVS wants to stay connected with patients throughout the process. It has spent heavily on this ambition; its total debt ballooned to $58 billion from just $10 billion a decade ago. A bloated balance sheet and uncertainty about whether this plan will work have contributed to the stock's multi-year slide.
The good news is that there's a pretty large margin of safety built into its shares at this point. Analysts believe CVS can grow earnings by an average of 6% annually over the next several years, and the stock offers a dividend that yields 3.5% at the current share price. That would generate annual investment returns near 10%, but CVS is valued at a P/E of just 8. Any future improvement in sentiment (likely from growth and paying down debt) could re-rate the stock higher and reward patient investors handsomely.
3. Hims & Hers Health
To spice things up, consider hypergrowth consumer-health stock Hims & Hers Health (HIMS 0.08%). The company operates a direct-to-consumer digital health platform where users can, through a website or smartphone app, consult healthcare professionals and receive and fill prescriptions and over-the-counter drugs. A key component is that patients don't need insurance to receive care at an affordable price.
Hims & Hers has grown its patient count vigorously, from 412,000 in the second quarter of 2021 to 1.2 million as of Q1, not even two years later. The company has leaned on taboo conditions like hair loss and sexual health but has expanded into areas like mental health, with plans for new categories.
The business isn't yet profitable according to generally accepted accounting principles (GAAP), but is rapidly growing and well-funded. Revenue increased by 88% year over year in its most recent quarter, and non-GAAP earnings before interest, taxes, depreciation, and amortization (EBITDA) were $6.1 million.
The stock trades at a price-to-sales ratio of just 2.2 using guided 2023 revenue. Considering the company's 80% gross margins and nearly triple-digit revenue growth, Hims & Hers could be a big winner for long-term investors if it keeps putting up such scorching numbers.
