2023 is turning out to be a horrific year for financial markets as investors are starting to see a glimpse of a possible economic collapse last seen during the 2008 financial crisis. Amid the Silicon Valley Bank debacle, several analysts and investors, including the Big Short Michael Burry, are warning that things could worsen in the coming weeks and months. In this backdrop, it’s but natural for investors to look for safe sectors to park their cash. The healthcare sector has been famous for being defensive and relatively safe during recessions.
Should You Buy Healthcare Stocks Before The Next Recession?
According to a report published by Sevens Report, the healthcare sector was one of the best performers over the past three recessions. Why is the healthcare sector defensive and safe? The reason is simple. The healthcare industry spans products and services that are often deemed essential in nature.
“As investors begin to glimpse signs of an economic slowdown, defensive-oriented sectors—those in which revenues are tied more to basic needs and are less economically sensitive—generally have performed well. These include health care, consumer staples, and utilities.”
At another point, the report explains why the healthcare sector, in addition to some other defensive sectors, remains strong in the face of a recession:
“These less economically sensitive sectors, including consumer staples, utilities, and health care, are dominated by industries that produce items such as toothpaste, electricity, and prescription drugs, which consumers are less likely to cut back on during a recession.”
M&A Activity in the Healthcare Industry
While the SVB collapse is haunting the tech industry, where several startups have their money linked to the fallen bank, the healthcare industry seems safe and has been making headlines with some mega deals lately. Several of the industry giants, including Pfizer Inc. (NYSE:PFE), Merck & Co Inc (NYSE:MRK). AbbVie Inc (NYSE:ABBV) and Novartis AG (NYSE:NVS), had already indicated earlier this year that they are interested in buying new companies this year. Analysts believe healthcare companies are interested in new deals in a bid to update their aging pipelines and fight market saturation.
Perhaps the biggest deal of 2023 to date came when Pfizer announced to acquire cancer drug company Seagen for a whopping $43 billion.
Sanofi has also announced to buy Provention Bio Inc., for $2.9 billion. Provention is known for its diabetes treatment.
Most Promising Healthcare Stocks According to Analysts
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Our Methodology
For this article we first used the Finviz stock screener to list healthcare stocks whose average analyst price target is 50% more than their current levels. We sorted the resultant dataset of stocks in ascending order of market cap and picked the top 12 stocks with highest upside potential based on their one-year analyst price estimates. With each stock we have mentioned its one-year analyst price target, taken from Yahoo Finance.
Most Promising Healthcare Stocks According to Analysts
NovoCure Limited (NASDAQ:NVCR) focuses on cancer treatments. NovoCure Limited (NASDAQ:NVCR) ranks 12th in our list of the most promising healthcare stocks according to analysts.
Earlier this month, NovoCure Limited (NASDAQ:NVCR) announced that its device called Optune will get reimbursement and was available with temozolomide (TMZ) in France to treat adult patients with newly diagnosed glioblastoma (GBM), a type of brain cancer.
In February, NovoCure Limited (NASDAQ:NVCR) posted Q4 results. GAAP EPS in the period came in at -$0.36, missing estimates by $0.07. Revenue in the period fell 3.6% on a YoY basis to reach $128.43 million, beating estimates by $1.23 million.
As of the end of the last quarter of 2022, 17 hedge funds had stakes in NovoCure Limited (NASDAQ:NVCR). The biggest hedge fund stakeholder of NovoCure Limited (NASDAQ:NVCR) was John Overdeck and David Siegel’s Two Sigma Advisors which had a $10.4 million stake in the company.
Surgery Partners, Inc. (NASDAQ:SGRY) operates a network of surgical facilities and ancillary services in the United States. Earlier this month, Surgery Partners, Inc. (NASDAQ:SGRY) posted Q4 results. Adjusted EPS in the period came in at $0.27, beating estimates by $0.09. Revenue in the quarter increased about 16% YoY to reach $707.1 million, beating estimates by $18.45 million.
For 2023, Surgery Partners, Inc. (NASDAQ:SGRY) expects revenue to come in at over $2.75 billion, versus the consensus estimate of $2.81 billion.
ClearBridge Investments made the following comment about Surgery Partners, Inc. (NASDAQ:SGRY) in its Q3 2022 investor letter:
“The overwhelming majority of recent performance headwinds were in health care. Primary detractors Syneos Health (SYNH), Horizon Therapeutics (HZNP) and Surgery Partners, Inc. (NASDAQ:SGRY) were each hurt by distinct issues. Syneos, a leading contract research organization, experienced a slowdown in new business wins from pharmaceutical customers; Horizon saw weaker sales trends for one of its key drugs, Tepezza for thyroid eye disease, while Surgery Partners sold off on concerns that increased summer vacation for doctors would lead to lower patient procedures combined with a fair amount of leverage on its balance sheet.”
Small molecule drugs company Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) earlier this month posted Q4 results that came in better than Wall Street expectations. Intra-Cellular Therapies, Inc. (NASDAQ:ITCI)’s GAAP EPS came in at -$0.45, beating estimates by $0.15. Revenue in the quarter jumped about 242% on a YoY basis to reach $87.87 million, beating estimates by $0.9 million. Intra-Cellular Therapies, Inc. (NASDAQ:ITCI)’s management said that it expects the company to post significant growth for CAPLYTA, which is the company’s bipolar depression therapy.
A total of 26 hedge funds have stakes in Intra-Cellular as of the end of the fourth quarter of 2022. The total worth of these stakes was $433 million. The biggest hedge fund stakeholder of Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) during this period was Brandon Haley’s Holocene Advisors which owns a $92 million stake in the company. Some other popular healthcare stocks among elite hedge funds are Pfizer Inc. (NYSE:PFE), Merck & Co Inc (NYSE:MRK), AbbVie Inc (NYSE:ABBV) and Novartis AG (NYSE:NVS).
TimesSquare Capital made the following comment about Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) in its Q3 2022 investor letter:
“Slipping by -18% was Intra-Cellular Therapies, Inc. (NASDAQ:ITCI), which develops small molecule treatments for neurological disorders. The company reported revenues that were better than expected, though earnings were lower. There was an acceleration of sales for Caplyta, a treatment for schizophrenia and bipolar depression. However, some investors appeared concerned that as Caplyta volumes increased to a higher level that the rate of growth will slow. We view the projected growth trajectory positively, as well as Caplyta’s potential for use in other indications, so we added to our position.”
CRISPR Therapeutics AG (NASDAQ:CRSP) is a highly promising name in the gene editing universe of stocks. CRISPR Therapeutics AG (NASDAQ:CRSP)’s average price target of $87.75 presents a strong upside potential from the current levels.
At the end of the fourth quarter of 2022, 28 hedge funds had stakes in CRISPR Therapeutics AG (NASDAQ:CRSP). The biggest stakeholder of CRISPR Therapeutics AG (NASDAQ:CRSP) was Catherine D. Wood’s ARK Investment Management which had a $318 million stake in the company.
Legend Biotech Corporation (NASDAQ:LEGN) is a clinical-stage biotech company with a focus on oncology products. Legend Biotech Corporation (NASDAQ:LEGN)’s one-year average price target is $71.29 as of March 13, which shows an attractive upside potential.
At the end of the fourth quarter of 2022, 28 hedge funds out of the 943 funds reported owning stakes in Legend Biotech Corporation (NASDAQ:LEGN). The net worth of these stakes was $689 million. The biggest hedge fund stakeholder of Legend Biotech Corporation (NASDAQ:LEGN) was Lei Zhang’s Hillhouse Capital Management which owns a $256 million stake in the company.
In January, Legend Biotech Corporation (NASDAQ:LEGN) announced that its CAR-T cell therapy, which the company commercializes with Johnson & Johnson (NYSE:JNJ), met the primary endpoint in a Phase 3 trial for patients with multiple myeloma.
TimesSquare Capital made the following comment about Legend Biotech Corporation (NASDAQ:LEGN) in its Q3 2022 investor letter:
“New to the strategy this quarter is Legend Biotech Corporation (NASDAQ:LEGN), a clinical-stage biopharmaceutical company engaged in the discovery and development of novel cell therapies for oncology and other indications. The company’s lead product is a CAR-T treatment for multiple myeloma and is currently in joint development/commercialization with Janssen Biotech. Chimeric antigen receptor T cells are genetically engineered for use in immunotherapy.”
BioNTech SE (NASDAQ:BNTX) ranks 7th in our list of the most promising healthcare stocks to buy according to analysts. BioNTech SE (NASDAQ:BNTX)’s one-year average price target by analysts stands at $214, according to Yahoo Finance. This price target represents a strong upside potential from current levels.
Recently, Pfizer (NYSE:PFE) and BioNTech SE (NASDAQ:BNTX) said they filed an application to the FDA for Emergency Use Authorization (EUA) for their Omicron-adjusted COVID vaccine as a booster shot for children under five years.
Insider Monkey’s proprietary database of 943 hedge funds shows that 34 hedge funds entered the first quarter of 2022 with BioNTech SE (NASDAQ:BNTX) in their portfolios. This was a sharp jump from 18 hedge fund shareholders at the end of the third quarter of 2022. The biggest hedge fund stakeholder of BioNTech SE (NASDAQ:BNTX) is Philippe Laffont’s Coatue Management with a stake worth about $93 million.
Artisan Partners made the following comment about BioNTech SE (NASDAQ:BNTX) in its Q3 2022 investor letter:
“BioNTech SE (NASDAQ:BNTX) is a leading biotech company focused on developing immunotherapies to treat cancer and other serious diseases. Over the past year, we trimmed our position significantly as we believed the stock’s valuation failed to reflect the windfall nature of COVID-19 vaccine cash flows. With the stock nearly 70% off its highs and, more importantly, at a reasonable discount to our PMV estimate, we view the valuation as opportunistic given its long-term profit cycle potential. BioNTech’s intellectual property in mRNA, and COVID funded manufacturing capacity leave it well-positioned to develop new mRNA vaccines and cancer therapies. In addition, the company has non-mRNA technology (e.g., cell therapy assets) and blue-chip partnerships offering additional optionality. While the company’s R&D pipeline beyond COVID-19 vaccines will take some time to mature, it is well funded by close to $20 billion in COVID-vaccine proceeds. We increased our position within the GardenSM as the stock declined.”
Boston-based Karuna Therapeutics, Inc. (NASDAQ:KRTX) is working on treatments for psychiatric and neurological conditions.
In March, investment firm Cantor Fitzgerald started covering Karuna Therapeutics, Inc. (NASDAQ:KRTX) with a $214 price target. This price target also presents an attractive upside to the current levels of $184 as of March 13. Cantor cited Karuna Therapeutics, Inc. (NASDAQ:KRTX)’s therapy designed to modulate the muscarinic receptors in the central nervous system and other tissues.
At the end of the fourth quarter of 2022, 34 hedge funds had stakes in Karuna Therapeutics, Inc. (NASDAQ:KRTX). The net value of these stakes was $743 million. The most notable hedge funds stakeholder of Karuna Therapeutics, Inc. (NASDAQ:KRTX) was Andreas Halvorsen’s Viking Global which had a $233 million stake in the company.
Carillon Tower Advisers made the following comment about Karuna Therapeutics, Inc. (NASDAQ:KRTX) in its Q3 2022 investor letter:
“Karuna Therapeutics, Inc. (NASDAQ:KRTX) is a biotechnology company that develops therapies to treat chronic mental health and central nervous system disorders. The stock rose significantly after data from the phase 3 trial for its treatment of schizophrenia achieved statistical significance on its primary endpoint. The effect of the drug was clinically meaningful on multiple parameters, including both positive and negative symptoms.”
