Are these the best healthcare stocks to watch?

Healthcare stocks: what you need to know

Healthcare stocks are the companies involved in providing medical services. The healthcare sector makes up one of the largest portions of the global economy, with a range of different categories of businesses, including:

• Pharmaceutical companies: these are the companies involved in producing over-the-counter and prescription drugs. Often called ‘big pharma’, these companies spend large portions of their income on research and development
• Healthcare services: these companies include the hospitals and clinics, which are the backbone of any healthcare system. Although many countries choose to run a public healthcare system, private healthcare companies are available for investment. Insurance companies are also included in this sector
• Medical device stocks: these are the companies involved in the creation and distribution of everything from artificial joints to blood pressure monitors. The products of these companies are usually always in demand
• Biotechnology: the companies in this section of healthcare are involved in research and development of medicines and technologies derived from living organisms. They are involved in providing treatment for chronic and terminal ailments

What moves the prices of healthcare stocks?

The prices of healthcare stocks, like most assets, are moved by the forces of supply and demand. There are a broad range of factors that cause share prices to change, including news and economic data.

Most recently, the Covid-19 crisis was one of the largest driving forces behind healthcare stock prices. Some companies have benefitted from the increased demand for healthcare products and services, but others have suffered from declining patient treatment amid lockdown measures.

Broadly speaking, the other factors that affect healthcare stocks are:

• Demographics: as people live longer, and the population grows, there is an increased reliance on medical services. The increased demand for drugs and other products can have a positive impact on share prices
• Fiscal policy: the relationship between government spending and private companies is an important factor when assessing healthcare stocks. Policies that impact the taxation of companies, and the amount companies can charge for their drugs, can greatly impact profit margins
• Research and development: for manufacturers, the introduction of new products has the largest impact on their share price. Prior to a drug being released, the outcome of clinical trials and any related news will affect the company’s share price. The most dramatic example of this recently has been the development of the Covid-19 vaccines
• Regulation: any regulation that could restrict the output of manufacturing companies or cause issues in the service delivery could play out negatively across the company share prices

How to trade or invest in healthcare stocks

There are two ways that you can get exposure to healthcare stocks: investing and trading.

When you invest in healthcare stocks, you’ll be buying shares in a company or a healthcare exchange traded fund (ETF) outright. This is done in the hope that they increase in price, and you can sell them at a later date for a profit. Along with the physical shares in the company, you would receive shareholder rights and any dividends that are paid.

Learn more about investing with a share dealing account

If you decide to trade healthcare stocks instead, you could speculate on shares and ETFs, whether they are increasing or decreasing in value. This means that you can focus on shorter-term market movements that might occur when news and regulatory announcements hit the market. You can trade on healthcare stocks via derivative products, such as spread bets and CFDs.

Both products are leveraged, so you’d need to put down a small initial deposit to gain full market exposure. While leverage can potentially make your money go a lot further, it can also magnify your losses, so a good risk management strategy is important.

Learn how to manage your risk

Top 10 healthcare stocks to watch

1. Johnson & Johnson (JNJ)
2. UnitedHealth Group Inc (UNH)
3. Pfizer Inc (PFE)
4. Eli Lilly and Company (LLY)
5. Abbott Laboratories (ABT)
6. Novartis (NOVN)
7. AbbVie Inc (ABBV)
8. Novo Nordisk (NVO)
9. Merck & Co Inc (MRK)
10. AstraZeneca (AZN)

The healthcare sector is huge, with a large number of stocks to choose from, and plenty of opportunities for going long and short. The following is a list of some of the largest healthcare stocks in the world by market capitalisation.

Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ) is the one of the world’s largest healthcare companies. It’s a multinational pharmaceutical and medical devices manufacturer based in the US, which consists of 250 companies – collectively called the ‘Johnson & Johnson family of companies’.

It was also one of a handful of companies producing Covid-19 vaccines around the world. 2023 full-year sales grew by 6.5% year-over-year to $85.2 billion.

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UnitedHealth Group Inc (UNH)

UnitedHealth Group (UNH) is a health and wellbeing company that provides products and insurance services to more than 50 million patients in the US, and over 5 million worldwide.

The company has not had to recover from as many Covid-19 disruptions as some of its peers, as it was able to continue a large part of its operations in 2020 by switching in person client care to virtual consultations.

In its 2023 full-year results, UnitedHealth saw revenues rise by 15% year-over-year to $371.6 billion, while earnings from operations grew by 14%.

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Pfizer Inc (PFE)

Pfizer Inc (PFE) is a US-based biopharmaceutical company that discovers, develops and delivers medicines, vaccinations and other healthcare products.

Pfizer was one of the largest Covid-19 vaccine producers and was the first company to announce its coronavirus vaccine was 90% successful on 9 November 2020. Its stock climbed 11%, while markets around the world rocketed – the FTSE 100 jumped by 5%, while the Dow Jones jumped 5.6% on opening.

In its 2023 full-year results, Pfizer generated revenues of $58.5 billion, and saw a record nine new molecular entity approvals from the US Food and Drug Administration.

Learn more about how to buy and sell Pfizer shares

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Eli Lilly and Company (LLY)

Eli Lilly and Company (LLY) is a US pharmaceutical company, with operations in more than 18 countries and sales in over 125 countries. The company has grown revenue strongly over the last few years, largely due to the Covid-19 pandemic, which saw increased demand for the company’s treatments.

In Q4 2023 results, Eli Lilly generated $9.4 billion in revenue, up by 28% year-over-year. This increase was driven by growth from weight-loss drug Mounjaro, alongside breast cancer pill Verzenio and diabetes medication Jardiance.

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Abbott Laboratories (ABT)

Abbott Laboratories (ABT) is an American healthcare company, which is focused on research-based drugs, medical devices and pharmaceuticals. It is considered a world leader in all of its core businesses, but is most famous for developing the first HIV blood screening test in 1985. Abbott Labs later spun off its pharmaceutical arm AbbVie, which is also one of the largest global healthcare stocks. The company has paid its shareholders dividends every year since 1924.

In its 2023 full-year results, the healthcare company saw sales decrease by 8.1% due to falling demand for covid-19 testing, though organic sales growth for the underlying business rose by 11.6%. Additionally, it projected additional organic sales growth of between 8% and 10% for 2024.

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Novartis AG (NOVN)

Novartis AG (NOVN) was founded in Switzerland in 1996, as a healthcare company focused on drug development. Novartis was initially listed on the SIX Swiss Exchange at $23.26.

Covid-19 created a significant number of challenges that impacted Novartis in 2020. However, the company’s CEO Vas Narasimhan said that they’re confident the healthcare industry has learned from mistakes made in the first wave, including the postponement of treatment, which hurt sales of Novartis drugs in the same year.

Novartis enjoyed a strong year in 2023; net sales rose by 10% while core operating income grew by 18%. Revenue growth was driven by strong sales from heart drug Entresto, Kesimpta for MS, Kisquali for breast cancer treatment, Pluvicto for prostate cancer and Scemblix for leukaemia.

CEO Vas Narasimhan enthused that the company had 'delivered ten positive Ph3 [Phase III trial] readouts on assets with significant sales potential, over the past year. The very strong performance of our key growth drivers and pipeline underscores the confidence in our growth.'

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AbbVie Inc (ABBV)

AbbVie Inc (ABBV) was created after Abbott Laboratories split into two publicly traded companies. It launched with a handful of Abbott Labs’ best-selling drugs and quickly gained market share. It now has a market capitalisation of $282.6 billion.

In full year results for 2023, the healthcare company saw net revenues fall 6.4% to $54.3 billion due to milestone payment expenses, the cost of the ImmunoGen and Cerevel Therapeutics acquisitions and generic competition to its growth hormone product Humira.

Nevertheless, chief executive Richard Gonzalez said that 2024 is 'an exciting year' for AbbVie, as it is 'well-positioned to fully absorb Humira erosion and achieve modest operational revenue growth, followed by a return to robust growth in 2025 and a high single-digit CAGR through the end of the decade.'

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Novo Nordisk (NVO)

Novo Nordisk (NVO) is a Danish multinational pharmaceutical company that manufactures products, including diabetes care medication and hormone replacement therapies. It is one of the world’s largest suppliers of insulin.

Novo still generates around 85% of its revenue from diabetes care, but over recent years, the focus has shifted from insulin to a new diabetes drug called GLP-1. The rise in its semiglutide drug platform, Ozempic, has pushed revenue and profitability higher - and saw the company enjoy the strongest capital gains in Europe in 2023.

Novo saw 2023 full-year sales increase by 36% at constant currency rates year-over-year to DKK 232.3 billion. President and CEO Lars Fruergaard Jørgensen enthused, 'we are very pleased with the strong performance in 2023, reflecting that more than 40 million people are now benefiting from our innovative diabetes and obesity treatments. We continue to make progress on our strategic aspirations. Our focus in 2024 will be on reaching more patients, progressing and expanding our pipeline as well as the continued significant expansion of our production capacity.'

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Merck & Co Inc (MRK)

Merck & Co Inc (MRK) is a US-based pharmaceutical company, established in 1891 as a subsidiary of the Germany company Merck.

Merck is another company that has been involved in the development of coronavirus vaccines. In March 2021, the company announced it would support manufacturing and supply of the Johnson & Johnson’s Covid-19 vaccine, though demand has now fallen for this treatment as the pandemic has receded.

2023 full-year worldwide sales rose by 1% year-over-year to $60.1 billion. Chairman and CEO Robert Davis noted that 'we reached more than 500 million people with our medicines last year alone, over half of which were donations, including through our program to treat river blindness. We also made investments of approximately $30 billion in research and development.'

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AstraZeneca (AZN)

AstraZeneca is an LSE-listed pharmaceutical company, specialising in oncology and respiratory-related treatments. More recently, it is famous for being the biggest producer of Covid-19 vaccines in the world.

After its formulation of the Oxford/AstraZeneca Covid-19 vaccine in early 2020, stocks predictably rose, although in common with many businesses on this list, this was only a small part of the overall strategy.

Full year revenues for 2023 rose 6% to $45.8 billion, despite covid-19 related product sales falling by $3.7 billion. The company marked its 25th anniversary, with double-digit earnings growth. Meanwhile, chief executive Pascal Soriot said he expects 'another year of strong growth in 2024, driven by continued adoption of our medicines across geographies. Our differentiated and growing portfolio of approved medicines, global reach and rich R&D pipeline give us confidence that we will continue to deliver industry-leading growth.'

Find out more about how to buy and sell AstraZeneca shares

What to bear in mind before trading healthcare stocks

The healthcare industry is currently experiencing a lot of volatility. The impacts of Covid-19 have both increased demand for research and development around treatments, as well as lowered the demand for other services.

Healthcare stocks had a mixed bag through the 2020s, with some riding high on the ‘Covid effect’ while other healthcare stocks in general have declined. This could, however, experience a rapid turnaround post-pandemic.

Before you take a position on a healthcare stock, it’s important to do your research and look at how they have performed in recent times. Some of the stocks on our list have outperformed the market, while others have suffered due to the pandemic and general bear market.

Depending on your goals – whether you’re interested in long- or short-term market movements – you’ll need to look at lasting sustainability of the company’s share price. If it’s overvalued, you might consider taking a short position on it, in anticipation of a stock market correction. And if it’s undervalued, you might want to go long to benefit from long-term growth.

Healthcare stocks summed up

• Healthcare stocks are all the companies that are involved in providing medical services
• The healthcare sector makes up one of the largest portions of the global economy
• Healthcare stocks fall into four categories: pharmaceutical, healthcare services, medical devices and biotechnology
• There are range of factors that cause healthcare share prices to change, including demographics, fiscal policy, research and development, and regulation
• Covid-19 has been providing fuel for growth for some healthcare companies, while stagnating the growth of others
• Investing in healthcare stocks enables you to look at longer-term market movements
• Trading healthcare stocks enables you to look at interesting short-term volatility that could play out across the share prices of the companies
• It is important to keep an eye on the latest industry trends and the forecast for healthcare stocks

Open an account to start trading or investing in the healthcare industry. Alternatively, you could create a demo account to practise trading in a risk-free environment.

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