You don't have to outthink the market or take big risks to profit off an investment. There are plenty of good healthcare stocks with strong momentum and solid financials that make great long-term choices. Two that come to mind are Danish pharmaceutical company Novo Nordisk (NVO -0.29%) and U.S.-based integrated healthcare benefits company UnitedHealth Group (UNH 1.35%).
The two companies share the tailwinds of increased spending on healthcare, including the aging of our population, along with the increasing complexity of medical care and the growth of chronic diseases, such as diabetes, that require ongoing treatment.
The companies have their own tailwinds as well, with Novo Nordisk building revenue off its weight-loss franchise and UnitedHealth Group finding its foray into Medicare Advantage to be lucrative. Over the past 10 years, both companies' total returns have easily outpaced the S&P 500.
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Novo Nordisk is fattening up its earnings
Novo Nordisk's shares are up more than 19%. The pharmaceutical stock's surging popularity is tied to the potential of the company's weight-loss drugs, Ozempic and Wegovy, both of whose key ingredient is semaglutide.
In the first quarter, the company reported revenue of 53.4 billion Danish kroner (roughly $7.6 billion), up 25% year over year, and net income of 19.8 billion Danish kroner (roughly $2.82 billion), up 35% over the same period.
The company's obesity care sales were up a whopping 131% year over year, mainly thanks to increased sales of Wegovy in the U.S. The biggest problem the company has had, and this is a nice problem to have, is being able to produce enough of the therapy to meet demand.
Toward that end, the company found a second contract manufacturer for Wegovy in April. Even with a second contract manufacturer, the company has slowed marketing efforts because it can't keep up with demand.
Ozempic is currently approved for type 2 diabetes, but has been increasingly prescribed off-label for weight loss. Wegovy is cleared for type 2 diabetes and weight loss. Both drugs are given as self-injections once a week and work by stimulating the receptors for glucagon-like peptide-1 (GLP-1), a part of the brain that regulates appetite.
Wegovy is being tested in a higher dose for weight loss in a tablet form, which would likely increase the number of people taking it. In a phase 3 trial released on May 22, the drug in tablet form helped people lose 15% of their body weight over 68 weeks, similar results to those shown by injectable Wegovy, the company said. Novo Nordisk said it expects to file for regulatory approval for the tablet form of Wegovy in the U.S. and Europe this year.
With all the hullabaloo regarding its weight-loss therapies, it's easy to overlook the depth of Novo's pipeline, which includes 26 programs, of which 10 are in phase 3 trials and run the gamut in therapies to treat the liver disease nonalcoholic steatohepatitis (NASH), sickle cell disease, and Alzheimer's disease.
Based on the strength of the weight-loss drugs, the company raised guidance to say it expects full-year revenue to grow 24% to 30% and net income to rise 28% to 34%.
The company also offers a semi-annual dividend of $1.19 per share, and it delivers a yield of around 1.08%. While that's below the S&P 500 average yield of 1.66%, over the past five years, the company has increased the dividend by 155%. And there's room for more growth as the payout ratio is only about 43%.
UnitedHealth Group is big and getting bigger
UnitedHealth Group's shares are down more than 9% this year, but that only provides a good price point to get in on a healthcare stock with strong growth potential. The nation's largest health insurer operates in two main businesses: UnitedHealthcare, the company's main health insurance arm, and Optum, which includes Optum Health, Optum Insight, and Optum Rx, all of which use technology and data to attempt to deliver better healthcare outcomes.
The reason the stock is down is a more short-term concern after Medicare reimbursement rates for health insurers for 2024 saw a 1.1% cut, on average. While nearly a third of UnitedHealth Group's business is tied to Medicare and Medicaid members, it has so many other revenue streams, and Medicare Advantage's long-term growth is so likely that there's not much to worry about here.
UnitedHealth Group reported first-quarter revenue of $91.9 billion, up 15% year over year, and earnings per share (EPS) of $5.95, up from $5.27 in the same period a year ago. The company also boosted full-year guidance for EPS to between $23.25 and $23.75, up from previous guidance of $23.15 to $23.65.
The growth of artificial intelligence should help the company improve profits by improving efficiencies, particularly in its Optum Health business. UnitedHealth Group bought software and data analytics firm Change Healthcare last October for $18 billion in a move the company said will help its software and data analytics, advisory, and revenue cycle management and technology-enabled services.
UnitedHealth Group raised its quarterly dividend by 13.7% last year to $1.65, the stock a current yield of 1.38%. The company has boosted the dividend by 83% over the past five years, and it has increased the dividend every year since it began having a quarterly dividend in 2010. Its dividend payout ratio of 30% leaves plenty of room for continued increases.
