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7 Hot Healthcare Stocks to Watch in 2023

While it has not produced the big gains seen among other sectors such as energy, healthcare has been a quiet outperformer over the past year. The S&P 500 Healthcare Index is essentially flat over the past 12 months. While that might not sound great, it is a lot better than the 16% decline of the benchmark S&P 500 index during the same period. The stocks of several pharmaceutical companies have increased more than 30% in the last year, driven higher by a combination of strong sales and a pipeline of promising, new medications. Healthcare stocks have also proven to be resilient in the wake of inflation, rising interest rates, and a volatile economy. That is because medications and health insurance are viewed as necessary staples rather than discretionary items. As we embark on a New Year, we offer the following list of seven promising healthcare stocks for 2023.

UNH United Health $490.50
MRNA Moderna $185
LLY Eli Lilly $356.20
HUM Humana $488
PFE Pfizer $47.30
MRK Merck $110
JNJ Johnson & Johnson $173.30

UnitedHealth Group (UNH)

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For a solid, long-term investment, look to UnitedHealth Group (NYSE:UNH). The Minnesota-based company specializes in both individual and group health insurance, and it is the largest healthcare company by revenue and the largest insurance company by net premiums in the world. UnitedHealth Group is also the world’s seventh biggest company with annual revenues approaching $300 billion.

Given the nature of its business, UnitedHealth Group is a great stock to own during a recession. Businesses and, to a lesser extent, consumers,  are likely to prioritize paying their health insurance premiums even during an economic downturn. That helps to explain why UNH stock has risen 4.5% over the past 12 months, outperforming the S&P 500 index that has fallen 16% in the same time period.

Over the last five years, UNH stock has gained 115%, making it a great investment to hold over the long term. And despite its recent outperformance, 23 analysts who cover the company have a median price target on the stock of $600,  23% above its current levels.

Moderna (MRNA)

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Boston-based biopharmaceutical company Moderna (NASDAQ:MRNA) is winning back investors with its robust pipeline of new medications, including a promising vaccine that would simultaneously protect people against both Covid-19 and influenza, as well as several cancer treatments.

While still below the highs reached during the pandemic when its vaccine against Covid-19 was one of the first to be approved by the FDA, MRNA stock has risen 40% in the past three months, and is now up nearly 4% over the last five trading days.

At around $185 a share and with a price-earnings ratio of only 6.7, MRNA stock looks cheap when compared to many other pharmaceutical stocks. The company has also continued to report strong earnings due to the global sales of its Covid-19 vaccine, which generated $18.4 billion of revenue for it in 2022.

Eli Lilly (LLY)

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Eli Lilly (NYSE:LLY) might have the blockbuster medication of the next decade on its hands with its obesity drug, Tirzepatide. While not yet commercially available, Tirzepatide has been granted “fast track” designation by the FDA.

If approved, Tirzepatide could help more than 2 billion adults worldwide who struggle with their weight. Some analysts are forecasting that Tirzepatide could be the best-selling drug ever produced. The hype surrounding the weight-loss medication has propelled LLY stock 38% higher over the past year, making it a top performer in the S&P 500 index.

Of course, Tirzepatide would not be the first blockbuster medication from Indiana-based Eli Lilly. The company also produces Prozac that’s used to treat depression and Cialis for erectile dysfunction. Those medications, and others, have powered Eli Lilly to annual sales of more than $30 billion.

Humana (HUM)

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Another promising healthcare stock for 2023 is insurer Humana (NYSE:HUM). The Kentucky-based company, which is the third-largest health insurance provider in America, had a very good 2022. In the last 12 months, HUM stock has risen 23% to $488 a share.

Most analysts expect the stock to climb further going forward. The 23 analysts who cover the company have a median price target on the name of $625, which is nearly 30% higher than where it currently trades.

The reason everyone seems bullish on HUM stock is the company’s growth potential. Humana currently insures more than 22 million people. And its Medicare Advantage customer base is forecast to grow an average of 14.7% annually through the next five years.

While the company’s dividend looks skimpy with a yield of only 0.65%, its dividend payout ratio is currently 12%, enabling the company to deliver strong annual dividend increases of 15% or more over the next five to ten years.

Pfizer (PFE)

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Pfizer (NYSE:PFE) remains a solid, blue-chip pharmaceutical stock. The company has produced many blockbuster drugs over the years, with its Covid-19 vaccine being the latest global bestseller. The New York City-based company sold $36.7 billion worth of Covid-19 vaccines in 2021.

The company has predicted that it sold $54.5 billion of Covid-19 vaccines last year, including booster shots, in 2022. Yet for all its success, PFE stock has fallen 17% in the last 12 months, matching the decline of the S&P 500 index. The company’s P/E ratio is a modest 9.17, suggesting the stock is cheap at its current levels.

Merck & Co. (MRK)

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Another healthcare stock that has been a winner over the last year and looks promising in 2023 is Merck & Co. (NYSE:MRK). The firm’s rapid earnings growth and its strong pipeline of products helped push MRK stock up 36% in the last year. The stock now trades at $110 and could gain even more in  the coming months.

MRK stock really took off last autumn after its medication, Keytruda, was approved for the treatment of certain cancers. The company is also working with Moderna on a medication to treat skin cancer that has shown promising results. Finally, Merck has a robust Animal Health unit that makes leading veterinary pharmaceuticals.

The company’s P/E ratio of 18 is about average among the stocks of pharma companies, and its dividend yield of 2.64% is significant, making MRK stock more attractive.

Johnson & Johnson (JNJ)

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Johnson & Johnson (NYSE:JNJ) is a steady stock. It doesn’t post spectacular gains, but it motors along at a decent clip. And investors who are worried about inflation and a possible recession should be attracted to its diverse line of consumer health products that include everything from Tylenol and Sudafed to Band-Aids and Polysporin.

Of course, Johnson & Johnson also produces vaccines and medications used to treat illnesses ranging from cancer to cardiovascular disease and hypertension. The company is preparing to spin off its consumer health segment into a separate company that will be called “Kenvue.” Investors may want to look into buying shares of that company once it is publicly traded.

JNJ stock rose 2% over the past year. That’s not overly inspiring, but it represents a huge outperformance compared to the overall stock market. In the past five years, the stock has gained 20%. Shareholders also benefit from a decent dividend yield of 2.58%.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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