Investing in healthcare can be an excellent way to focus on stable, long-term growth opportunities. And many top healthcare stocks also pay dividends. Two of the best healthcare stocks to buy right now are CVS Health (CVS -0.22%) and Bristol Myers Squibb (BMY 0.34%). These stocks are not only cheap but they can be strong pillars to build your portfolio around for decades, and they both provide an excellent dividend.
1. CVS Health
CVS is a top healthcare company that has been growing its presence over the years through acquisitions. In 2018, it acquired Aetna to expand into health insurance. This year, it has added home health company Signify Health and primary care operator Oak Street Health into the fold.
The company has the potential to be one of the larger healthcare stocks in the world. By diversifying its operations, CVS is in a great position to meet the growing demand that's likely to come in the years ahead as demographics change and seniors make up more of the population; by 2030, all Baby Boomers will be at least 65 years of age. Investing further and deeper into healthcare should set CVS up for much more growth in the long run.
Acquirers normally see their shares fall following an acquisition because investors can sometimes disagree on the strategy or valuation. And in CVS' case, it closed on two multi-billion dollar acquisitions this year. At a time when many companies are scaling back on expenses amid fears of a recession, CVS is loading up. But for long-term investors, that can be a great thing because the deals open up more growth opportunities in the process.
Through the first six months of the year, CVS' revenue has totaled $174.2 billion and risen 11% year over year. Operating income of $6.7 billion is down 19% but the company has been facing an increase in healthcare costs; earlier this year, health insurance company UnitedHealth Group warned investors that pent-up demand for surgeries was leading to an increase in costs. Over time, however, those costs should come down as things normalize.
Either way, CVS stock should be performing better than it has been this year -- it's down 26%. It's trading at only 8 times its estimated future profits and could be a bargain buy for long-term investors given its bright future. It also pays an attractive dividend that yields 3.4%.
2. Bristol Myers Squibb
Another healthcare stock that has been struggling this year is Bristol Myers Squibb. Down 22%, it hasn't fared a whole lot better than CVS. Investors are concerned about the patent cliffs the company is facing as multiple drugs are losing patent protection this decade, including Eliquis and Opdivo. On top of that, the company also has close to $35 billion in long-term debt on its books.
Like CVS, it has been turning to acquisitions to get bigger. And Bristol Myers projects that by 2029, new drugs will be bringing in $25 billion in revenue. Last year, Bristol Myers reported $6.3 billion in profit on revenue of $46.2 billion. The company recently announced a deal to acquire Mirati Therapeutics for up to $5.8 billion. That will once again bolster Bristol Myers' portfolio with a cancer drug, Krazati, which may generate up to $1.4 billion in additional sales at its peak.
Bristol Myers is trading at just 7 times its estimated future profits. And based on the analyst consensus price target of over $68, the stock has an upside of at least 22%. In the long run, the gains for this beaten-down stock could be even higher. This is another income stock that can be good to buy and hold -- Bristol Myers' dividend yield is relatively high at just over 4%.
