In this article we present the list of top 10 large-cap healthcare stocks to buy now. Click to skip ahead and see the Top 5 Large-Cap Healthcare Stocks to Buy Now.
The healthcare industry has been one of the strongest drivers of GDP growth in recent decades, which has translated into massive returns for healthcare stocks. The healthcare sector’s total return of 296% during the 2010’s only trailed two other sectors, technology and consumer discretionary.
Some of the biggest winners during the decade were managed care providers and health insurers, which rode the Affordable Care Act to massive returns. Biotech and medical device companies were also strong performers.
That trend is expected to continue in the decades to come, with health spending projected to outpace GDP growth in the majority of OECD countries over the next decade, resulting in health spending per capita reaching an estimated 10.2% of GDP by 2030, up from 8.8% in 2018. In the U.S, the Centers for Medicare and Medicaid Services Office of the Actuary projects that healthcare will account for 19.4% of GDP in 2027, up from 17.9% in 2017, driven by an aging population and price increases.
To uncover some of the best names in the healthcare space, we turned to Henrik Rhenman’s Rhenman & Partners Asset Management, a Stockholm, Sweden-based healthcare-focused hedge fund that was founded by CIO Henrik Rhenman in 2008. The fund uses fundamental analysis and scientific advice from external experts to uncover promising stocks in the global healthcare market.
Rhenman’s flagship Rhenman Healthcare Equity L/S Fund has been incredibly successful since its inception in June 2009, delivering compound annual returns of 18.1% through April 2020. The long-biased fund returned just over 40% in 2019 in addition to 35% returns in 2017 and 20% returns in 2015. Those hefty returns more than outweighed the fund’s 5% loss in 2018 and 12% loss in 2016.
The following list of Top 10 Large-Cap Healthcare Stocks to Buy Now is based on Rhenman & Partners’ 13F holdings as of December 31, 2020 according to the fund’s latest 13F filing.
We follow hedge funds like Rhenman & Partners because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns. The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
Now then, let’s check out the Top 10 Large-Cap Healthcare Stocks to Buy Now. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
10. Teladoc Health, Inc (NYSE:TDOC)
Teladoc Health, Inc (NYSE:TDOC) is the only stock on this list which Rhenman & Partners opened a new position in during Q4, acquiring 115,000 shares. The bulk of that (if not all of it) was due to the October closing of Teladoc’s acquisition of Livongo, which merged the market leaders in the virtual care and applied health signals spaces.
Rhenman owned 166,961 LVGO shares on September 30, equating to 98,840 TDOC shares according to the terms of the merger agreement. The fund may have bought more LVGO shares during October, or purchased the remainder of its TDOC shares outright. Whatever the case may be, the position has already proven extremely profitable for the fund, as TDOC shares have gained 43% in 2021.
Hedge funds are bullish on Teladoc Health’s opportunity in the expanding telehealth space, which is currently a top priority among healthcare plans. Teladoc’s long-term organic revenue growth is projected to be quite healthy in the years to come as a result, with some estimates suggesting 30-40% potential.
9. Humana Inc (NYSE:HUM)
Rhenman & Partners sold 2,000 shares of Humana Inc (NYSE:HUM) during Q4, dropping its position to an even 58,000. The fund has owned a stake in Humana dating back to 2015. Hedge fund ownership of Humana fell by 16% during Q3 as hedge funds worried about the potential implications for Humana and other healthcare companies that could arise from the November Presidential elections.
The resulting Biden victory appears to be favorable for the insurer, as the President has proposed lowering the age at which Americans can buy into Medicare to 60 from 65, greatly expanding the potential customer pool for Humana. Humana’s membership has doubled over the last decade, topping 20 million members in 2020.
8. Anthem, Inc. (NYSE:ANTM)
Anthem, Inc. (NYSE:ANTM) is another health insurer that Rhenman & Partners remains bullish on, owning 80,000 shares at the end of 2020 after selling off 11,000 shares during Q4. Hedge fund ownership of Anthem declined slightly in 2020 as hedge funds appear split on the company’s future growth trajectory.
In its Q4 investor letter, Nomadic Value Partners reported that it had sold off its ANTM position in December, with the fund expressing pessimism about Anthem’s ability to compete with more vertically integrated insurers following the Blue Cross Blue Shield lifting geographical boundary restrictions from its plans.
On the other hand, Anthem’s Pharmacy Benefits Management business has proven to be wildly successful thus far, growing revenue 7-fold to $16 billion during the first nine months of 2020, and contributing to Anthem’s soaring free cash flow, which rose by 100% in 2019.
7. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
Rhenman & Partners has owned Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) since the middle of 2014 and bought another 5,000 shares of the stock during Q4, lifting it to 115,000 in total. In addition to its solid pipeline, Vertex is also on the hunt for mid- and late-stage companies to snap up, which could meaningfully boost revenue long-term.
VRTX shares are down by 10% over the past year despite strong results, primarily due to a miss in its pipeline. The pharmaceutical company best known for its cystic fibrosis gene therapy treatments grew revenue by 15% year-over-year in Q4 on the strength of its newest treatment Trikafta, sales of which grew by 160% year-over-year to $1.09 billion. However, its small-molecule drug VX-814 displayed safety concerns in a midstage trial, sending shares crashing by 20% in mid-October, which was a clear overreaction.
6. Merck & Co., Inc. (NYSE:MRK)
One of the Top 5 Stocks Warren Buffett Just Bought, Merck & Co., Inc. (NYSE:MRK) also held a prominent position in the portfolio of Rhenman & Partners Asset Management. The healthcare fund owned 344,020 MRK shares at the end of December, hiking its position by 115% during Q4.
Merck shares have struggled over the last year, sliding by over 11% as investors fret over the pharmaceutical giant’s plan to spin off some of its assets into a new entity, including its legacy brands, women’s health business, and biosimilars. The fear is that Merck will become too heavily reliant on sales of its blockbuster drug Keytruda at that point, despite many of the assets its plans to divest having underwhelmed of late.
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Disclosure: None. Top 10 Large-Cap Healthcare Stocks to Buy Now is originally published at Insider Monkey.