Healthcare in the United States is big business: Experts believe the system could generate more than $6 trillion in annual spending by 2030. That's an opportunity for investors to find the key players that can help grow a portfolio.
But there are so many companies in the sector, including those in medical devices, pharmaceuticals, insurance, and more. How do you know where to look?
To get you started, I've done a little groundwork on this sector of the market. There are a lot of blue-chip healthcare stocks to choose from, but UnitedHealth Group (UNH 0.30%), AbbVie (ABBV -4.58%), and Pfizer (PFE 0.55%) stand out among the crowd. The strong fundamentals and attractive prices of these three top stocks make them great October stocks you can buy and hold indefinitely.
1. UnitedHealth is America's top dog in insurance
Insurance company UnitedHealth Group is arguably the biggest cog in America's healthcare machine, providing coverage to over 150 million people through commercial and welfare programs. UnitedHealth's Optum segment also offers services and analytics to patients and care providers.
Healthcare is fragmented; there are several steps in every process or treatment, and many players are involved. UnitedHealth's size gives it several advantages, including the resources to do more for customers and patients at a lower price. It has steadily expanded with the healthcare system to become a massive company doing nearly $350 billion in annual revenue. Below, you'll see years of its uninterrupted growth.
UNH revenue (TTM) data by YCharts. TTM = trailing 12 months.
The stock trades at a forward price-to-earnings (P/E) ratio of 20, and analysts estimate earnings will grow by 14% annually over the coming years. UnitedHealth looks like a solid deal for that growth, considering the stellar-quality business you'd be investing in. Investors should keep it on their watch list because it seems like the company will keep performing at a high level.
2. Pfizer's post-COVID plunge is an opportunity
Pharmaceutical company Pfizer saw people worldwide use its COVID-19 drugs, creating billions of dollars in revenue. The company's coronavirus products Paxlovid and Comirnaty combined for $56.7 billion in sales last year, 56% of 2022 revenue.
But as the pandemic passes, that revenue is drying up, and investors are seeing revenue and earnings decline, turning the market negative on the stock. Shares have declined more than 45% from their former highs. It seems fair that shares would fall as Pfizer's business shrinks. It's also reasonable that it could take some time to regain growth as COVID-19-driven sales are replaced.
PFE revenue (TTM) data by YCharts.
But the market might be overdoing its selling. Analysts believe Pfizer's earnings per share (EPS) will come in at $3.33 this year, a 50% decline from the company's 2022 earnings. Still, the stock trades at just 10 times those profits. Factor in a pending $43 billion acquisition of Seagen (Pfizer is acquiring growth assets with all that vaccine money), and growth could get back on track. This short-term uncertainty could be a great long-term buying opportunity.
3. AbbVie won't miss Humira forever
AbbVie is another pharmaceutical leader that recently lost its golden goose. The company has enjoyed years of patent exclusivity with Humira, an anti-inflammatory product, among the world's top sellers. It helped the company roughly triple in size over the past decade.
But the U.S. patent expired earlier this year, and cheaper generics have already hurt Humira's sales, which are down 6.9% year over year in the U.S. through six months.
However, the company has emerging products waiting in the wings to offset that decline. Sales of its other anti-inflammatory drugs Skyrizi and Rinvoq are up 49% and 51%, respectively, year over year. Combined, these two drugs are still smaller than Humira, but that could change as they grow and Humira declines.
AbbVie is also seeing double-digit growth in smaller product segments like neuroscience (up 14% year over year) and eye care (up 15% year over year).
ABBV revenue (TTM) data by YCharts.
Humira's decline could slow AbbVie's overall growth for a time, but analysts believe the company can still average 5% annual earnings growth, which could accelerate as Humira's decline drops out of the equation.
Today shares trade at a forward P/E of 13. That might not look like a bargain considering its expected mid-single-digit growth, but it could prove cheaper in hindsight if growth accelerates again.
