Dec 24, 2023

Top Healthcare Stocks for June 2023

TBPH, RDY, and VKTX lead for value, growth, and momentum, respectively

Ulet Ifansasti / Getty Images

Top healthcare stocks this month include Viking Therapeutics Inc., Cabaletta Bio Inc., and Prometheus Biosciences Inc., shares of which have soared more than 600% in the last year on promising early data for new therapeutic products or acquisition offers.

Healthcare stocks—represented by the Health Care Select Sector SPDR ETF (XLV), an exchange-traded fund (ETF)—fell 2% over the past year, compared with a 2% increase for the Russell 1000.

Here are the top three healthcare stocks in the following categories: best value, fastest growth, and most momentum. Benchmark data are as of June 7, while company data below are as of May 5.

These are the healthcare stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

Source: YCharts

These are the top healthcare stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

Source: YCharts

These are the healthcare stocks that had the highest total return over the past 12 months.

Source: YCharts

An aging baby boomer population is creating additional demand for medical products and services, underpinning growth expectations for the healthcare sector. According to the Centers for Medicare and Medicaid Services, U.S. national healthcare expenditure is expected to reach $6.8 trillion by 2030.

A key advantage of the healthcare sector is consistent demand. The overall demand for healthcare products and services is likely to remain steady and to even increase as populations age. This makes healthcare stocks a potential defensive play.

At the same time, rapidly developing technologies also provide opportunities for both short- and long-term growth potential in the industry. It is also not uncommon for individual healthcare companies to see massive surges in stock price upon the announcement of promising clinical trials or the release of a new therapeutic with strong potential.

The pandemic and technological advances have accelerated several key trends across the healthcare sector that provide potential opportunities for investors, among them telehealth and healthcare wearables.

Telehealth: Telehealth connects patients with health professionals using video calls and health apps. Such services allow people in less-served regional areas or those who can't easily travel to access medical advice in their homes or workplaces.

A survey conducted by the Bipartisan Policy Center showed that 63% of respondents had used telehealth as a preventative service, for a prescription refill, or for a routine visit for a chronic illness. Moreover, eight in 10 surveyed said their primary health issue was resolved and that they would likely use telehealth in the future.

Investors can gain exposure to telehealth through stocks including Teladoc Health Inc. (TDOC), Doximity Inc. (DOCS), and American Well Corp. (AMWL).

Healthcare Wearables: Wearable electronic devices allow consumers or patients to wear technology that collects their personal health and fitness data. Healthcare wearables can send a user's health information in real-time to a doctor or other health professional for regular monitoring.

Some of the more popular healthcare wearable devices are smart health watches, electrocardiogram (ECG) monitors, blood pressure monitors, and biosensors. A survey conducted by Insider Intelligence found U.S. consumers' use of healthcare wearables increased to 33% in 2022 from 9% four years earlier.

Key stocks involved in healthcare wearables include Garmin Ltd. (GRMN), Wearable Health Solutions Inc. (WHSI), and Apple Inc. (AAPL).

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above stocks.

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Cabaletta Bio. "Cabaletta Bio Announces CABA-201, a Newly Designed CD19 Targeting CAR T Cell Therapy Engineered to Address a Broad Range of Autoimmune Diseases."

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Insider Intelligence. "The Top Medical Monitoring and Healthcare Wearable Device Trends of 2022."

Theravance Biopharma Inc.: Intercept Pharmaceuticals Inc.: Zymeworks Inc.: Dr Reddy's Laboratories Ltd.: Royalty Pharma PLC: AstraZeneca PLC: Viking Therapeutics Inc.: Cabaletta Bio Inc.: Prometheus Biosciences Inc.: Telehealth Healthcare Wearables