Healthcare has been a laggard this year. A slowpoke, a dawdler, an idler. And for good reasons.
While technology stocks have powered this year’s market rally, shares of healthcare companies have trailed behind. The S&P 500 Healthcare Index is essentially flat year to date (down 0.71%) while the benchmark S&P 500 has gained 20% on the year.
Reasons for declines include everything from healthcare companies having poor earnings to widespread concerns about healthcare spending declines in the face of an economic recession.
But rather than wring their hands over the slump in healthcare stocks, investors should look for bargains and buying opportunities in the beaten down sector. Many healthcare stocks have attractive valuations and look affordable right now following this year’s selloff. With fears mounting that mega-cap tech stocks might be peaking, healthcare stocks could soon bottom and begin to rise again. Let’s look at three healthcare stocks that smart investors will snap up now.
Humana (HUM)
Shareholders of health insurer Humana (NYSE:HUM) have been missing out on this year’s market rally. Since January, HUM stock has declined 9% and the stock is now trading 5% lower than where it was 12 months ago.
The decline has more to do with sentiment than results. Concerns have been raised about Medicare Advantage cost-trend uncertainty and its potential impact, as well as the upcoming election cycle. This raises the old adage – don’t own health insurance stocks in an election year.
Analysts at JPMorgan Chase (NYSE:JPM) recently cited these issues when downgrading HUM stock to “neutral” (hold) from “overweight” (buy), and lowering its price target to $540 a share from $576 previously. While disappointing, the decline in Humana’s stock and sour sentiment have made the HUM comparatively cheap. Currently, the company’s shares are trading at 18 times future earnings, which is reasonable. The stock also pays a quarterly dividend of 88 cents a share, which is good for a yield of 0.78%.
Moderna (MRNA)
For a healthcare stock that has been absolutely bludgeoned, look to biopharmaceutical company Moderna (NASDAQ:MRNA). A leader in Covid-19 vaccines, Moderna’s stock has plummeted since the pandemic began to wane in mid-2022. So far this year, MRNA stock has fallen 34%. The share price is now 74% below the all-time high it reached in September 2021.
While the decline has been brutal, there is reason for hope as we approach cold and flu season when Covid-19 infections are likely to accelerate along with sales of vaccine booster shots.
Beyond Covid-19, Moderna is developing a vaccine against Respiratory Syncytial Virus (RSV), a virus that causes cold-like symptoms in most people but can be deadly in newborns and the elderly. Moderna is also working to create cancer treatments, notably a vaccine for people who have had melanoma surgically removed. Recent stories of notable investors, including Cathie Wood, buying MRNA stock is bringing hope that a bottom is in sight. Trading at only 10 times future earnings, this is definitely a cheap healthcare stock.
Johnson & Johnson (JNJ)
Blue-chip Johnson & Johnson (NYSE:JNJ) is another healthcare company whose stock can’t seem to catch a break.
JNJ just reported better-than-expected Q2 earnings and raised its full-year guidance. This declared earnings per share (EPS) of $2.80 versus the $2.62 that was forecast on Wall Street. Revenue in Q2 came in at $25.53 billion compared to $24.62 billion that was projected. Looking ahead, Johnson & Johnson expects full-year revenue of $98.8 billion to $99.8 billion, which is $1 billion higher than previous forecasts.
Despite the beat and raise, JNJ stock is down 6% on the year. Analysts and investors have been ignoring the company’s financial outperformance. Instead, they are focusing on the company’s ongoing legal problems.
Johnson & Johnson is embroiled in tens of thousands of lawsuits over its well-known baby powder that is alleged to have contained asbestos that caused mesothelioma and other types of cancer. The company’s recent attempt to settle the lawsuits for $8.9 billion was dismissed in court, sending JNJ stock lower, but making it cheaper.
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.
