The healthcare sector has been a linchpin in both our personal lives and the broader economy. It often shines during late economic cycles and recessions, making it an attractive investment avenue. With technology and innovation advancing rapidly, the sector is drawing more attention than ever.

Given this backdrop, it could be wise to consider investing in fundamentally sound healthcare companies like Johnson & Johnson (JNJ), AbbVie Inc. (ABBV), and Merck & Co., Inc. (MRK), which have earned a ‘Strong Buy’ rating in our proprietary rating system.

Healthcare stocks are crucial in today’s capital market, ranking as the third largest industry in the S&P 500 Index. Known for their defensive nature, healthcare stocks often perform better during economic slowdowns than other sectors. The U.S. healthcare sector is massive and poised for continued growth, with health spending projected to reach nearly $4.9 trillion in 2024.

The National Institutes of Health (NIH) is driving this momentum by investing nearly $48 billion in medical research, fueling advancements in clinical trials, and promoting value-based care. This emphasis on quality and efficiency is further transforming the industry.

Globally, health expenditure per capita is expected to hit $1,700 by 2026, up from $1,530 in 2021, showing a clear trend towards increased investment in healthcare. Additionally, the U.S. individual health insurance market is forecasted to expand at a CAGR of 6.1% from 2023 to 2030.

Considering these conducive trends, let’s evaluate the three Medical - Pharmaceuticals picks, beginning with the third choice.

Stock #3: Johnson & Johnson (JNJ)

JNJ is engaged in researching, developing, manufacturing, and selling healthcare products primarily focused on human health and well-being. The company offers a diversified range of products through the Innovative Medicine and MedTech segments.

On August 20, JNJ announced its acquisition of V-Wave Ltd., a privately held company specializing in innovative heart failure treatment. The deal includes an upfront payment of $60 million, with the potential for additional payments of up to $1.1 billion. This acquisition is set to enhance JNJ MedTech’s position in the cardiovascular space, broadening its portfolio of advanced heart failure treatment options.

On the same day, JNJ also announced that RYBREVANT® (amivantamab-vmjw) plus LAZCLUZE™ (lazertinib) received U.S. Food and Drug Administration (FDA) approval for the first-line treatment of adult patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) with epidermal growth factor receptor (EGFR). This multitargeted formulation becomes the chemotherapy-free combination regimen for patients with EGFR-mutated NSCLC.

For the second quarter of 2024, which ended on June 30, JNJ’s sales to customers increased 4.3% year-over-year to $22.45 billion. Its gross profit rose 3.5% from the year-ago value to $15.58 billion. The company’s adjusted net earnings from continuing operations amounted to $6.84 billion, representing a marginal increase from the same period last year. Also, its adjusted net earnings per share from continuing operations for the quarter increased 10.2% year-over-year to $2.82.

As per the updated guidance for the fiscal year 2024, JNJ forecasts operational sales between $89.20 billion and $89.60 billion, a 6% increase from 2023, primarily driven by recent acquisitions. The company also expects adjusted EPS between $9.97 and $10.07.

The consensus revenue estimate of $22.47 billion for the fiscal fourth quarter (ending December 2024) represents a 5% increase year-over-year. The consensus EPS estimate of $2.30 for the same quarter indicates a marginal improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past three months, the stock has surged 13.7%, closing the last trading session at $164.23.

JNJ’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

JNJ has a B grade for Value, Stability, and Quality. It is ranked #18 out of 158 stocks in the Medical - Pharmaceuticals industry. Click here to see the additional ratings for JNJ (Growth, Momentum, and Sentiment).

Stock #2: Merck & Co., Inc. (MRK)

MRK is a global healthcare company offering health solutions through its prescription medicines, including biologic therapies, vaccines, and animal health products. It operates through two segments: Pharmaceutical and Animal Health.

On August 26, MRK received European Commission (EC) approval for WINREVAIR™ (sotatercept) in combination with other pulmonary arterial hypertension (PAH) therapies. This approval covers the treatment of PAH in adult patients with World Health Organization (WHO) Functional Class (FC) II to III to improve exercise capacity.

WINREVAIR™ is the first therapy targeting the activin signaling pathway for PAH patients and also the only activin signaling inhibitor therapy approved across all 27 EU member states.

On August 9, MRK agreed to acquire CN201 from Curon Biopharmaceutical (Curon), a privately held biotech company. CN201 is a clinical-stage bispecific antibody being investigated for treating B-cell malignancies. The company plans to leverage this acquisition not only to advance treatments for B-cell diseases but also to explore its potential as a scalable option for autoimmune diseases.

MRK’s sales for the second quarter ended June 30, 2024, increased 7.2% year-over-year to $16.11 billion, while its KEYTRUDA product sales improved by 15.9% from the year-ago value to $7.27 billion. The company’s non-GAAP net income stood at $5.81 billion compared to the prior-year quarter’s loss of $5.22 billion, while its non-GAAP EPS came in at $2.28 versus a loss of $2.06 per share last year.

According to the full-year 2024 guidance, MRK forecasts worldwide sales to range from $63.40 billion to $64.40 billion, an increase from the previous guidance of $63.10 billion to $64.30 billion. The company also expects non-GAAP EPS to be between $7.94 and $8.04.

Analysts expect MRK’s revenue for the fourth quarter (ending December 2024) to increase 7.4% year-over-year to $15.71 billion, while its EPS for the same period is expected to grow significantly from the prior year to $1.95. Moreover, the company topped the consensus revenue estimates in each of the trailing four quarters.

The stock has gained 16.2% over the past nine months to close the last trading session at $117.46.

MRK’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It also has an A grade for Quality and a B for Value and Stability. Within the same industry, it is ranked #5 out of 158 stocks. Click here to see MRK’s ratings for Growth, Momentum, and Sentiment.

Stock #1: AbbVie Inc. (ABBV)

ABBV is a global diversified research-based biopharmaceutical company engaged in manufacturing and selling medications and therapies. It offers a comprehensive product portfolio across Immunology, Oncology, Neuroscience, Eye Care, Aesthetics, and Other Specialties.

On August 19, ABBV received conditional marketing authorization from the EC for TEPKINLY (epicoritamab). This approval marks the first and only subcutaneous bispecific antibody granted such status as a monotherapy for treating both relapsed or refactory (R/R) follicular lymphoma (FL) and R/R diffuse large B-cell lymphoma (DLBCL) after two or more prior therapies.

In the same month, ABBV announced the acquisition of Cerevel Therapeutics (CERE) to strengthen its position in neuroscience and expand its portfolio in psychiatry, migraine, and Parkinson’s disease, bolstering its existing pipeline and market presence.

For the six-month period that ended on June 30, 2024, ABBV’s net revenue increased 2.6% year-over-year to $26.77 billion, while the company’s Neuroscience segment reported net revenue of $4.13 billion, indicating a 15.3% growth from the prior-year quarter. ABBV’s attributable net income came in at $2.74 billion, up 21% year-over-year, while its earnings per share attributable grew 21.4% from the year-ago value to $1.53.

Looking ahead, ABBV forecasts full-year 2024 and raises its adjusted EPS to range between $10.71 and $10.91, from the prior forecast of $10.61 and $10.81.

Street expects ABBV’s revenue and EPS for the fiscal fourth quarter (ending December 2024) to increase 2.5% and 5.8% year-over-year to $14.66 billion and $2.95, respectively. Moreover, it beat the revenue estimates in each of the trailing four quarters, which is promising.

Shares of ABBV have gained 40.9% over the past nine months and 32.2% over the past year to close the last trading session at $195.18.

ABBV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Out of 158 stocks in the Medical - Pharmaceuticals industry, ABBV is ranked #3. Click here to see ABBV’s rating for Momentum.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

JNJ shares were trading at $164.77 per share on Friday afternoon, up $0.54 (+0.33%). Year-to-date, JNJ has gained 7.59%, versus a 18.69% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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