The healthcare industry landscape is changing. While the COVID-19 pandemic was one of the most significant events that led to the change, the pandemic cannot take full credit. The healthcare sector has been evolving since the beginning of the 21st century. Alliance Bernstein reports that the MSCI World Health Care Index, which tracks the large and mid-cap segments across 23 developed markets, looks different than it did at the beginning of the century.
Pharmaceuticals have dominated the global healthcare market for a long time, but the trends have been changing over the years. Between 2000 and 2011, the weight of pharmaceutical companies in the MSCI World Health Care Index went down from 82% to 65% and has now dropped to 41% in 2023.
2023 has not been kind to the healthcare sector. Health Care Select Sector SPDR Fund (XLV) has declined by 1.24% year-to-date (YTD) as of December 18, while the S&P 500 is up nearly 24%.
Mad Money’s Jim Cramer says that the healthcare sector is in such bad shape because it is “in the cross hairs” with the US government due to the upcoming election year. According to him, the Biden administration's last year’s legislation allowing Medicare to negotiate the price of prescription drugs could hurt some of the biggest revenue generators of the sector if all goes according to the government’s plan. He also blamed the lack of innovation in the sector and believes that it has made the healthcare stocks less attractive.
Nevertheless, some companies in the sector have performed way better than the market. Novo Nordisk A/S (NYSE: NVO) has gained 44.54% YTD on December 18. Similarly, while most of the S&P 500’s biggest gainers have been technology stocks, Eli Lilly and Company (NYSE:LLY) has also managed to squeeze in as one of the top performers. The company’s stock is up 58.84% YTD.
Among the healthcare sector gainers, the biotech industry has caught quite a few eyes. While the S&P Biotechnology Select Industry Index is down nearly 50% from its 2021 highs, it has managed to gain approximately 27.5% since the end of October. Some of the industry’s best performers are Soleno Therapeutics, Inc. (NASDAQ:SLNO), MoonLake Immunotherapeutics (NASDAQ:MLTX), and Ambrx Biopharma Inc. (NASDAQ:AMAM). When we previously discussed these three stocks last month, they were up 1,175.34%, 416.51%, and 372.46% YTD on November 21, respectively. However, they have experienced further gains as Soleno Therapeutics, Inc. (NASDAQ:SLNO) is up 1,642.01%, Ambrx Biopharma Inc. (NASDAQ:AMAM) has gained 611.59%, and MoonLake Immunotherapeutics (NASDAQ:MLTX) is 440% higher YTD as of December 18.
Technology is also one of the major growth catalysts of the healthcare sector. Technologies like telehealth and artificial intelligence are the key innovators in the industry. For example, Intuit Inc. (NASDAQ:INTU)’s da Vinci Surgical System is a robotic surgical system that uses AI to help surgeons perform minimally invasive surgeries. In addition, Alphabet Inc. (NASDAQ:GOOGL) is working on a large language model, Med-PaLM 2, designed to answer healthcare-related questions.
Although the recent performance of the healthcare sector does not paint a pretty picture, the sector is still a crucial part of the global economy and it will continue to grow due to its indispensability. In light of that, we look at some of the most promising healthcare stocks according to analysts, which include Sanofi (NASDAQ:SNY), Royalty Pharma plc (NASDAQ:RPRX), and BeiGene, Ltd. (NASDAQ:BGNE).
13 Most Promising Healthcare Stocks According to Analysts
A healthcare provider holding an MRI scan of a patient with a traumatic brain injury.
Our Methodology
For this article, we created a list of large to mega-cap companies in the healthcare sector using the Yahoo Finance stocks screener. Next, we chose the stocks with the highest average analyst price target upside as of December 18. The analyst price targets were taken from TipRanks.
We only chose the companies that were covered by at least two analysts and didn’t have many Hold or Sell ratings as compared to Buy-equivalent ratings. The most promising healthcare stocks according to analysts are listed in ascending order of their average analyst price target upside.
13 Most Promising Healthcare Stocks According to Analysts
AstraZeneca PLC (NASDAQ:AZN) is a pharmaceutical and biotechnology company that is involved in the research, manufacturing, and selling of pharmaceutical and medical products globally.
On December 12, AstraZeneca PLC (NASDAQ:AZN) announced a deal valued at up to $1.1 billion to acquire the vaccine developer Icosavax, Inc. (NASDAQ:ICVX). Once the deal goes through, the company will acquire the cash and marketable securities on the balance sheet of Icosavax, Inc. (NASDAQ:ICVX), which was $229 million as of September 30, 2023, and its vaccine candidate, IVX-A12.
On December 4, it was reported that AstraZeneca PLC (NASDAQ:AZN) signed a deal valued up to $247 million for the development of antibody-based cancer therapy based on Absci Corporation (NASDAQ:ABSI)’s artificial intelligence (AI) technology.
On November 21, AstraZeneca PLC (NASDAQ:AZN) announced that its drug, Koselugo (selumetinib), developed for the treatment of malignant glioma, received approval from the U.S. FDA.
AstraZeneca PLC (NASDAQ:AZN) is one of the most promising healthcare stocks according to analysts, along with Sanofi (NASDAQ:SNY), Royalty Pharma plc (NASDAQ:RPRX), and BeiGene, Ltd. (NASDAQ:BGNE).
argenx SE (NASDAQ:ARGX) is a Netherlands-based immunology company that develops human antibody products for autoimmune diseases.
On November 16, argenx SE (NASDAQ:ARGX) announced that a subcutaneous version of its myasthenia gravis therapy Vyvgart (efgartigimod alfa) received the European Commission’s (EC) approval. The drug will be indicated in EU countries along with Iceland, Norway, and Liechtenstein.
With an average analyst price target upside of 23.24%, argenx SE (NASDAQ:ARGX) is one of the most promising healthcare stocks, according to analysts.
“Our preference within Health Care is for novel therapies to address unmet medical needs, specialized providers, and innovators. argenx SE (NASDAQ:ARGX) is a global immunology company focused on autoimmune diseases. Their share price advanced 28% after outpacing estimates and aided by sales of Vyvgart for treating myasthenia gravis. Management also gave an encouraging update on clinical readouts and their expanding pipeline.”
Biogen Inc. (NASDAQ:BIIB) is a biotech company that carries out the development, manufacturing, and commercialization of therapies focused on neurology, oncology, and immunology.
On December 13, Biogen Inc. (NASDAQ:BIIB) announced that the new Alzheimer’s therapy, Leqembi, co-developed with Eisai, will be rolled out in the market in Japan. The drug will be launched on December 20 and will be priced at around ¥2.98M ($20.4K) per patient per year.
On December 15, Biogen Inc. (NASDAQ:BIIB) reported that its drug omaveloxolone, also called Skyclarys, received positive opinion about approval from the EU regulators. The company expects to get the European Commission’s approval in Q1 2024.
Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is a Massachusetts-based company that discovers, develops, and commercializes RNA therapy for genetically defined diseases.
On November 13, Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) reported that its drug for hypertension, zilebesiran, yielded positive results in the Phase 2 study.
Out of the 22 Wall Street analysts that covered Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) over the last three months, 16 kept a Buy rating on the stock. The average price target of $232 represented an upside of 24.577% at the time of writing on December 18.
According to Insider Monkey’s database, 35 hedge funds had a stake in Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY)’s stock in the third quarter. Kurt Von Emster’s VenBio Select Advisor was the biggest stakeholder in the company, with 1.011 million shares worth $179 million.
The Cigna Group (NYSE:CI) is a healthcare and insurance company that provides integrated health plans and services, including medical and dental insurance, etc.
On December 10, The Cigna Group (NYSE:CI) announced a tremendous increase to its share repurchase program, which will take place in 2024. With the company’s Board of Directors’ approval of an increase of $10 billion in incremental share repurchase authorization, its total share repurchase program will be increased to $11.3 billion.
The Cigna Group (NYSE:CI) was mentioned in Davis Funds’ third quarter 2023 investor letter. Here is what it said:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.”
8. Takeda Pharmaceutical Company Limited (NYSE:TAK)
Average Analyst Price Target Upside: 26.30%
Average Analyst Price Target: $17.43
Takeda Pharmaceutical Company Limited (NYSE:TAK) is one of the biggest pharmaceutical companies in Asia and discovers, develops, manufactures, markets, commercializes, imports, and exports drugs.
On December 11, Takeda Pharmaceutical Company Limited (NYSE:TAK) announced that its Adcetris (brentuximab vedotin) plus PD-1 inhibitor nivolumab and standard chemotherapy agents, jointly developed with Seagen Inc. (NASDAQ:SGEN), met their secondary endpoint in a Phase 2 trial for early stage classical Hodgkin lymphoma.
According to Insider Monkey’s database, 13 hedge funds were bullish on Takeda Pharmaceutical Company Limited (NYSE:TAK)’s stock in the third quarter, compared to 12 funds in Q2. Israel Englander’s Millennium Management increased its stake in the stock by 22% to 3.762 million shares worth $58.204 million, making it the top investor in the company.
On December 15, Takeda Pharmaceutical Company Limited (NYSE:TAK) reported that its drug, Hyqvia, received the recommendation of approval from the European Medicines Agency’s Committee for Medicinal Products for Human Use to be utilized as maintenance therapy for chronic inflammatory demyelinating polyneuropathy.
Incyte Corporation (NASDAQ:INCY) is a Delaware-based company that is engaged in the discovery, development, and commercialization of proprietary cancer therapeutics.
On December 10, Incyte Corporation (NASDAQ:INCY) reported that its drug, axatilimab, developed with Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) as the co-development and co-commercialization partner, met its primary endpoint. The companies are planning to file for FDA approval by the end of the year.
On December 13, Leerink upgraded Incyte Corporation (NASDAQ:INCY)’s stock to Outperform rating from Market Perform with a $78 price. The firm changed the rating in light of the datasets presented by the company at the ASH conference.
36 hedge funds had investments in Incyte Corporation (NASDAQ:INCY)’s stock in the third quarter. With 36.2 million shares worth $2.09 billion, Julian Baker And Felix Baker’s Baker Bros. Advisors was the biggest stakeholder of the company in the quarter.
Humana Inc. (NYSE:HUM) is a Kentucky-based company that provides fully insured medical and specialty health insurance benefits to its customers.
Out of 15 Wall Street analysts that covered Humana Inc. (NYSE:HUM) over the last three months, 12 maintained a Buy rating on the stock. The average price target of $583.20 represented an upside of 26.77% as of the December 18 market close.
On December 12, Argus upgraded Humana Inc. (NYSE:HUM)’s stock to a Buy rating from Hold with a $550 price target. The upgrade came in the light of the company getting out of the merger talks with The Cigna Group (NYSE:CI), as there were multiple downsides, according to the analyst.
Sanofi (NASDAQ:SNY), Royalty Pharma plc (NASDAQ:RPRX), and BeiGene, Ltd. (NASDAQ:BGNE) are some of the most promising healthcare stocks according to analysts besides Humana Inc. (NYSE:HUM).
Diamond Hill Capital commented on Humana Inc. (NYSE:HUM) in its third-quarter 2023 investor letter. Here is what it said:
“Among our top individual contributors in Q3 were new holding Humana Inc. (NYSE:HUM) and American International Group (AIG). Leading health care benefit plans-provider Humana caters heavily to the senior citizen population, many of whom are enrolled in Medicare Advantage plans through Humana. During the quarter, shares were pressured as several large managed care companies said the senior population is utilizing medical care at a higher-than-expected rate, negatively impacting the medical loss ratio of health plans. Compared to fee-for-service, traditional Medicare plans, Medicare Advantage plans offer relative value and should lead to sustainable growth for Humana over time — so we capitalized on the compelling valuation to initiate a position in the quarter.”
