Nvidia's $1.1 trillion valuation means investors are paying nearly 240 times earnings for a piece of the business. Amazon is a bit more expensive at $1.3 trillion, and it's price-to-earnings (P/E) multiple sits at 307. You could go for a "cheaper" option and invest in Tesla -- its market cap is around $850 billion, and its stock only trades at 87 times its trailing earnings.
You would need to be extremely bullish on the growth prospects of these companies to be willing to buy stock at those kinds of premiums. They may turn out to be good buys, even at those extremely high valuations. The worry when it comes to tech, especially artificial intelligence (AI), is that given the market rally this year in that sector, many of those stocks already have a ton of growth priced into their valuations.
If you want to invest in a sector where there may be excellent growth opportunities to take advantage of right now and where stocks are at much more manageable valuations, you should take a look at the healthcare industry.
Healthcare companies are doing very well
Many healthcare companies struggled in recent years as the COVID-19 pandemic weighed down their operations and dampened demand. But now the time may be ripe to start loading up on healthcare stocks, as the underlying businesses are doing better.
Consider the following three companies, which recently reported earnings:
- Johnson & Johnson (JNJ -0.46%) reported more than 10% year-over-year operational growth in its latest earnings report, for the period ending June 30. In particular, its MedTech business generated incredible operating growth of just under 15%. J&J's recent acquisition of Abiomed helped boost results by 4.8% year over year, but the company also saw an increase in demand for orthopedics and wound-closure products. An uptick in device sales suggests that hospitals are getting back to their normal operating procedures.
- Intuitive Surgical (ISRG 0.59%) reported 22% year-over-year growth in its da Vinci procedures over the same quarter. A year ago, the growth rate was only 14%, and the company said that in both 2022 and 2021, COVID negatively impacted its operations. Those issues appear to have abated. The company's robotic-assisted da Vinci systems help with surgery, and an increase in procedures is yet another strong sign that the industry is growing at a solid rate.
- UnitedHealth Group (UNH 0.30%) reported 16% year-over-year revenue growth as sales climbed to just under $93 billion, also over the same period. The health insurer even beat expectations, after warning investors a month earlier that pent-up demand for surgeries would lead to higher costs for the company.
These are all positive signs that the healthcare industry is finally moving in the right direction. Hospitals are resuming normal operations. China hasn't gone back into lockdown. The industry is finally at a place where these businesses can be in a prime position to do well and get back to growing again.
Healthcare stocks are also cheap
This may be a great time to invest in healthcare companies, now that the industry is doing better. Below are six stocks that are big names in healthcare and that trade at P/E multiples of no more than 25:
UNH PE Ratio data by YCharts.
Healthcare is an ideal option for long-term investors
If you're looking for investments to hang onto for years, buying shares of healthcare companies makes even more sense. With the U.S. population aging, the healthcare industry is going to get a whole lot busier. There are plenty of growth opportunities for pharmaceutical companies, health insurers, and medical device manufacturers.
AI may sound new and exciting, but its prospects for helping a business achieve more revenue and profit growth may be unclear. With healthcare, there are fewer question marks: It's an essential service and one that is in greater need as people get older. That's why long-term investors should try to find room to buy shares of some solid healthcare stocks: They're not only relatively safe options, but they also have many growth opportunities ahead.
