While artificial intelligence and the tech sector are still squarely in the market’s spotlight, some investors (including yours truly) are starting to think the sector is growing overcrowded. Many are looking around for new sectors to invest in. One of the industries that caught my eye is the healthcare sector due to its permanent relevance. This may be a big claim, but we cannot deny that people need healthcare - daily.
To put it into perspective, improvements in medicine help improve the human condition and have the potential even to prolong humanity’s lifespan. This makes healthcare companies even more important. Additionally, healthcare costs associated with illness are a big market, with Americans spending nearly $13,000 annually. This makes it an indispensable part of any budget. Hence, I think any investor should at least have one healthcare stock in their portfolio, and if I were to pick from the long list, these three are my top choices.
Cencora, Inc. (COR)
Cencora, Inc. is a pharmaceutical solutions company formed from the merger of AmeriSource and Bergen Brunswig in 2001. The company is a wholesale distributor of various pharmaceuticals, healthcare products, and solutions. Aside from its primary distribution services, COR has a portfolio of solutions catering to veterinarians, ag-retailers, and manufacturers specializing in the animal health industry. Cencora recently repurchased some of its shares from Walgreens Boots Alliance, which are now held in treasury.
COR’s Q4 and FY’23 financial results present a solid bullish case for COR, thanks to its 12.7% YoY quarterly revenue growth. Quarterly EPS also came in positive, exceeding analyst predictions by 2.51%. Full-year numbers also make a great case, with annual revenue growing 9.9% and full-year and EPS ending at $11.99, an 8.7% increase. With such impressive financial growth and strategic initiatives, it is no wonder analysts love COR.
Cencora Analyst Ratings
Analysts rate COR as a “Strong Buy” based on 10 Strong Buy and 3 Hold recommendations from analysts. The mean target price is $216.42, and the high target price is $242.00, representing an upside of 10.65%.
McKesson Corporation (MCK)
McKesson Corporation is a healthcare services company that offers health information and distributes pharmaceuticals, care management tools, and medical supplies. It operates in several primary segments. Prescription technology solutions cater to solving challenges in medication accessibility and affordability. Medical-surgical handles logistics and distribution operations of medical-surgical supply and other services to health care providers. The U.S. pharmaceutical segment covers its OTC, branded, specialist, generic, biosimilars, and other products offered in the United States. Lastly, the international segment is engaged in wholesale and distribution to customers in Canada and Europe.
McKesson’s Q2’24 quarterly results reported a substantial 10% YoY increase in revenue and a 3% increase in earnings per diluted share. In response to these promising numbers, the company increased its full-year EPS projections from $26.55-$27.35 to $26.80-$27.40. MCK attributes the strong performance in the U.S. pharmaceutical segment’s increased volume of prescriptions from national accounts and special product customers. In addition, MCK also highlighted the key strengths of its oncology and biopharma services as long-term value propositions for its shareholders. With a solid growth outlook, strategic positioning, and robust financial results, MCK deserves a spot on any investor portfolio.
McKesson Analyst Ratings
Analysts rate MCK as a “Strong Buy” based on 10 Strong buys, 1 Moderate buy, and 2 Hold recommendations. The mean target price is $495.92, and the high target price is $563, representing an upside of 15.89%.
Cardinal Health, Inc. (CAH)
Cardinal Health, Inc. is a healthcare services company that offers bespoke solutions to hospitals, pharmacies, laboratories, physician offices, and healthcare systems. CAH also provides laboratory, pharmaceutical, and medical product solutions. The company operates in two segments: Medical for its Cardinal Health branded products production and distribution; Pharmaceutical for its generic and other brand pharmaceuticals and over-the-counter healthcare and consumer product line. Its recent launch of its exclusive SmartGown™ EDGE Breathable Surgical Gown with ASSIST™ Instrument Pockets is a product of its strong partnership and collaboration with companies like Mayo Clinic and other industry experts.
CAH ended the first quarter of FY’24 with a 10% YoY increase in revenue and a non-GAAP operating earnings increase of 35%, driven by the significant profit growth in its medical and pharmaceutical segments. Meanwhile, non-GAAP diluted EPS increased by 44% YoY. Its pharmaceutical segment’s revenue also grew by 11%, and its bottom line grew by 18%, driven by brand and specialty pharmaceutical sales growth. The company also raised its non-GAAP EPS projections to between $6.75 and $7.00, from $6.50 to $6.75. CEO Jason Hollar highlighted the company’s capital structure and strategic initiatives as a substantial part of its significant profit growth.
Cardinal Health Analyst Ratings
Analysts rate CAH as a “Moderate Buy” based on 8 Holds, 1 Moderate Buy, and 3 Strong Buy recommendations. The mean target is $105.92, and the high target price is $126.00, a 19.48% potential upside.
Final Thoughts
Each market sector presents its pros and cons. However, the health sector still takes the cake regarding resilience. People need reliable healthcare; good companies providing such services are worth additions to any investor’s portfolio.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
