The healthcare sector is filled with many ups and downs, but if you can identify a company that has staying power, through either superior branding, industry dominance, innovation, or some combination of those three factors, you could be sitting on a massive long-term growth opportunity.
With that in mind, we asked three of our top analysts to don their Foolish thinking caps and look out to the horizon for a healthcare stock they'd feel confident holding for a Warren Buffett-esque period of forever! Here's what they had to say.
Selena Maranjian: You should never just buy a stock and forget about it, but if you're looking for a solid performer that's likely to be around and doing well decades from now, consider Medtronic (NYSE:MDT). It's a medical devices giant focused on cardiac and vascular treatments, restorative therapies, and diabetes, and it's delivering many high-tech offerings, such as pacemakers that can be installed with minimal invasion via femoral arteries, "brain pacemakers" that could treat diseases such as Parkinson's, and wearable artificial pancreases. It's involved in telemedicine and electronic medical records through its CareLink network, connecting patients at home with their doctors.
Medtronic has been growing in part via acquisitions, and it recently made a big one, gobbling up Covidien for $50 billion. Together, the companies will employ more than 85,000 people and rake in more than $27 billion annually. With Medtronic headquartered in Minnesota and Covidien in Ireland, the combined company is poised to reap tax savings via Ireland's lower corporate tax rate. Even more recently, Medtronic bought Diabeter, an innovative diabetes care specialist and researcher. Medtronic's strength is evident in its net profit margin topping 15%.
Medtronic's stock isn't a screaming bargain at recent levels, so you might want to hold off on buying now and just add it to your watchlist -- or ease into a position with a few shares. For patient believers, Medtronic pays a dividend that recently yielded 1.6%, and it has been increasing that payout regularly, by an annual average of 8% over the past five years. Its payout ratio of about 40 suggests plenty of room for further growth.
Not content simply to rest on its past success in the U.S. health insurance market, UnitedHealth has broadened its scope both geographically and through expanding related business lines. The company's 2012 purchase of Brazil's Amil has gone well, and CEO Stephen Hemsley recently referred to Brazil as "the most fertile market for health benefits and services outside the U.S." Taking that business model to other areas of the world holds huge potential for UnitedHealth.
Yet UnitedHealth's most recent big move focused on its domestic business, with the planned purchase of pharmacy benefit manager Catamaran boosting UnitedHealth's OptumRx unit to create an even bigger player in the rapidly growing PBM space. With the broader Optum division incorporating health management support, physician services, and consulting support, UnitedHealth expects to see a lot of opportunities beyond traditional health insurance in the years to come. Given enough time, UnitedHealth could build up a worldwide presence in helping people manage their healthcare needs, and combined with its strength in its regular health insurance business, that bodes well for long-term investors seeking stocks they can hang onto for the foreseeable future.
Sean Williams: Insurers and medical device makers are certainly smart bets over many decades, but I'm going to take the road less traveled and suggest that the healthcare stock you can buy and hold forever is biotechnology giant Celgene (NASDAQ:CELG).
Obviously, there are risks with holding a biotech stock for the long term, such as patent expirations and being able to replace lost revenue. But, I believe Celgene has the tools capable of outperforming the broad market for a very long time.
Celgene's best selling point, in my opinion, is its collaborations. At the moment, Celgene has more than two dozen ongoing collaborations ranging from cancer research to inflammation and immunology. Celgene isn't going to be able to discover every breakthrough drug internally, but thanks to billions of dollars in annual revenue and cash flow from cancer drug Revlimid, it can finance the development of potentially game-changing drugs for small- and mid-sized biotech companies. Its humble willingness to reach out to other companies for partnerships should sustain a healthy revenue stream for decades. It only takes a home run every now and then for Celgene's hefty investments to pay off.
Another key point is that Celgene's current product portfolio has the ability to extend the life of approved therapies by seeking new label indications. Although Revlimid may start seeing patent losses in the 2020s, its approval in any number of the eight additional indications it's currently being studied for could extend its relevance and make it a blockbuster drug into the 2030s.
Celgene isn't the most logical "buy and hold forever" choice, but I believe that with a dividend being implemented in five to 10 years and a long-tail growth opportunity, it could handily outperform the market.
The Motley Fool recommends Celgene and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.