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5 Best Health Care Stocks to Buy in 2021

The health care sector is massive. According to Statista, nearly $2.5 trillion is spent on health care in the United States every year. According to the Bureau of Economic Analysis, the entire U.S. gross domestic product (GDP) for 2019 came in at $21.43 trillion, meaning the health care industry accounts for more than 10% of GDP. In other words, more than 1 in every 10 dollars spent in the United States is spent on health care.

That’s colossal.

There are going to be huge opportunities in a market this large. When trillions of dollars are being spent, you can bet that there are plenty of companies making millions or billions of dollars per year that you can invest in.

However, an investment in health care has an added benefit. When you invest in health care, you’re investing in the people, technology, and therapies that improve the quality of lives and extend the lives of people within your community and around the world. So, an investment in the health care space comes with a feel-good effect.

Nonetheless, no matter how good an investment makes you feel, the goal is growth. Like any other sector, to achieve the goal of generating growth in the health care sector, you’ll need to make educated decisions and pick the right stocks at the right times.

Beware the Risky COVID-19 Plays

When you think health care, COVID-19 is going to pop into your mind, and you’re not alone. The pandemic has changed the way we live. So naturally, when you think of investing in health care, you’re going to want to look at COVID-19 stocks.

At the moment, there are hundreds of publicly traded companies that have said they’re working on vaccines, treatments, and other COVID-19 related products. However, only a handful of these companies actually have a product or a tangible product candidate. The rest of them are operating on an idea, a hope, and a dream.

That’s no way to run a company, but it happens often.

Any time a potentially profitable topic becomes popular among investors, companies with little by way of management, resources, or ability jump on the bandwagon and say, “We’re working on this too!” Oftentimes, investors put money into these companies, only to realize tremendous losses when the bubble pops.

The most popular example of this is the dot-com bubble. Companies of all sizes came from all corners of the market to get their hands on investor dollars. When the bubble popped, investors lost tremendous amounts of money. While some big names that thrived in the dot-com bubble are still around today and are some of the biggest companies in the world, many have gone bankrupt, taking investor dollars with them.

So, when investing in health care, keep in mind that COVID-19 isn’t the only illness, and it’s far from the only opportunity. Moreover, if you decide to invest in COVID-19 stocks, it’s important to do extensive research to make sure that the company you’re investing in not only has something on the market or something promising, but also the ability to bring that product to the masses over time.

Pro tip: You can earn up to a $2,500 bonus when you open and fund a new trading account from M1 Finance. With M1 Finance, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares. Sign up for M1 Finance.

Best Health Care Stocks to Buy Right Now

No matter what sector you’re interested in, not all stocks will be created equally. Some stocks will see gains while others will experience losses. So, it’s important to take the time to get an understanding of the health care space, what makes companies within the space profitable, and the investment opportunity that surrounds the stocks you’re interested in before making any investments.

Below are a few stocks I believe represent some of the largest opportunities in the health care sector today.

1. Novavax (NVAX)

NovaVax is a biotech stock that has experienced an overwhelming run for the top in the market this year. At the beginning of the year, the stock traded at around $4.50 per share. Today, it’s worth more than $100 per share and still climbing.

So, what led to more than 2,000% growth over the course of eight months? COVID-19 accelerated the growth, but this isn’t one of those “jump on the bandwagon” kind of companies. This stock has real potential in COVID-19 and beyond.

Novavax is working on two vaccine candidates. In terms of COVID-19, the company’s approach to vaccination against the pandemic-causing virus was validated in Phase 1 clinical studies. Now, the management team has pushed its COVID-19 vaccine into Phase 2 clinical studies, which are ongoing. If all goes well, Novavax will launch Phase 3 studies by the end of the year, the final study before a push for regulatory approval.

Some say that Novavax won’t be the first to market, and therefore it won’t be profitable. That’s simply not the case. The virus that causes COVID-19 is a coronavirus, the same type of virus that causes the common cold. The common cold has taught us something about human immunity. Have you ever noticed that when you get a cold, you feel better in a week, then you don’t get a cold for a few years? That’s because, once your body gets it, you build immunity to it, but that immunity fades.

Current evidence suggests that the novel coronavirus that causes COVID-19 will probably act in the same way. So, people will likely need to receive vaccines on an annual or bi-annual basis, much like flu vaccines. As a result, there’s a long-term opportunity for any company that has a COVID-19 vaccine candidate that has shown promise of being highly safe and effective, regardless of who gets theirs to market first.

On the other hand, even if the company’s COVID-19 vaccine were to flop, Novavax is still a strong play, even at its current price levels, thanks to the company’s flu vaccine candidate known as NanoFlu.

Novavax has been working on NanoFlu for years. Seasonal flu vaccines have been losing efficacy over the years. For Novavax, that’s great news. It’s new approach to vaccination against the flu recently beat pharmaceutical rival Sanofi’s standard-of-care flu vaccine in terms of efficacy in a head-to-head clinical trial as outlined by FierceBiotech.

This is overwhelmingly valuable — the company has a flu vaccine that, in pivotal Phase 3 clinical trials, did better than the competing vaccine that is already mass produced and distributed as the current standard of care. Taking market share from the competition would be  a win worth billions of dollars per year in revenue, with Fortune Business Insights suggesting that the flu vaccine market will grow to more than $7 billion annually by 2026.

Considering the compelling progress Novavax has had in the development of a COVID-19 vaccine and the opportunity that’s ahead surrounding NanoFlu, this stock has the potential to gain in many more multiples in the long run.

2. Gilead Sciences (GILD)

Gilead Sciences is another COVID-19 play with a twist. If you’ve been watching the news at any time over the past several months, you’ve likely heard about the company’s drug remdesivir.

In a clinical trial, remdesivir proved to reduce the time to recovery of COVID-19 patients. The trial, outlined in The New England Journal of Medicine, showed that patients treated with remdesivir recovered from COVID-19 with respiratory symptoms five days — or 33.3% — faster than those treated with a placebo.

Since the trial, the U. S. Food and Drug Administration provided Emergency Use Authorization to remdesivir as a treatment for hospitalized patients with severe COVID-19 symptoms. As a result, the treatment is the current standard of care for severely ill COVID-19 patients.

Gilead Sciences was a highly successful company prior to COVID-19, and it will continue to be even if COVID-19 were to be eradicated.

Gilead Sciences is a pioneer in the hepatitis C treatment market. The makers of brand-name hepatitis C medications Sovaldi and Harvoni, the company offers short-term treatments that have the potential to cure this devastating condition. In doing so, Gilead Sciences has made billions upon billions of dollars, and will likely continue to do so.

However, the opportunity doesn’t stop there. The Gilead Sciences pipeline is filled with candidates that have the potential to become blockbusters. In particular, the company has several therapeutic candidates for conditions like HIV, hepatitis B, and various cancers. The company is also working to develop treatments for fibrotic diseases and inflammatory diseases.

Each of the company’s several clinical programs has the potential to produce positive catalysts in the near term. In the long term, many of them have the potential to generate billions of dollars in revenue.

When you take into account the fact that Gilead developed the current standard-of-care COVID-19 therapy and the current standard-of-care hepatitis C therapy, it only makes sense to conclude that the company will generate plenty of revenue from these treatments while creating other highly-successful therapies in the future. As such, the stock has the potential to generate significant returns for investors in the long run.

Pro tip: If you’re going to add health care stocks to your portfolio, make sure you choose the best possible companies. Stock screeners can help you narrow down the choices to companies that meet your requirements. Learn more about our favorite stock screeners.

3. Teladoc (TDOC)

Teladoc is a COVID-19 play as well, but they don’t create vaccines or treatments. Instead, this is a health care technology company. The company’s claim to fame is an on-demand service that connects patients to doctors, therapists, and other medical specialists online rather than in person.

The technology is nothing new. Teladoc has been around since 2002. However, the company faced a barrier. Many patients — especially elderly patients and those with preexisting conditions — didn’t like the idea of seeing their doctors on computer screens. They wanted the face-to-face interaction and didn’t see any value in avoiding the commute to see a doctor over the computer.

That has changed for many of these high-risk patients in today’s pandemic environment. As a result, Teladoc appointments are becoming the norm. This has been a great shift for the company and its investors. Year to date, the company has grown more than 260% and continues to climb. These gains are likely far from over.

Some naysayers suggest that once COVID-19 vaccines are available and the fear is in the past, Teladoc won’t be quite as lucrative. That’s probably the furthest thing from the truth.

Remember that people said online shopping would never become popular. Consumers like to touch and feel products before buying them. But today, Amazon is one of the world’s largest companies, and it’s continuing to grow.

When people are exposed to something that they think will be uncomfortable but find that it’s actually quite appealing, the new concept often becomes the norm. There’s a good chance that this is the direction the health care industry is going.

Many people like not having to leave their homes to go to the doctor’s office. So, when the COVID-19 pandemic is over, the telehealth trend will probably continue. That will bode well for Teladoc and its investors, making the stock one for the books.

4. Humana (HUM)

According to Statista, the insurance industry brought in a whopping $101 billion of revenue for companies within it in 2019. The statistics powerhouse also names Humana as one of the top three insurance companies in the United States by market share, with control over 8.4% of the sector.

The only two insurance companies that take a larger market share are UnitedHealth Group and Anthem, which control 14.1% and 9.6% of the market, respectively.

If you want to invest in the health care market, but you’re looking for a more stable growth investment opportunity that pays dividends, Humana may be the perfect choice for you. Throughout its history as a publicly traded company, Humana has seen relatively consistent growth, even in the face of tough economic times.

On top of the solid growth seen from the company over the years, it is one that believes in showing appreciation for investors through dividend payments. In fact, since 2011, Humana has consistently increased its dividends on an annual basis. There’s no signal that this trend will come to an end.

Moreover, the stock is a strong value play. According to Zacks, Humana’s valuation is far lower than it should be when using nine of the 10 most common valuation metrics, including cash-to-price ratio, PEG ratio, and price-to-earnings ratio.

When looking to the future, there’s quite a bit for Humana and its investors to look forward to. The company’s proven leadership isn’t likely to change any time soon. So, further stable growth is likely ahead.

With a leadership position in a massive market, a market valuation that’s clearly below what it should be, and a strong history of consistent growth in both value and dividend payments, Humana stock is worthy of your watchlist.

5. Ely Lilly (LLY)

Ely Lilly is yet another massive company with a COVID-19 twist. The company is working on a vaccine candidate known as LY-CoV555, but this isn’t like any other COVID-19 vaccine currently under development.

LY-CoV555 was developed specifically to prevent COVID-19 infections in the nursing home setting. Therefore, it is being developed as a treatment for older adults and the health workers who care for them.

This unique twist on COVID-19 vaccination has seen quite a bit of early success. Today, Ely Lilly is working on a Phase 3 clinical trial. Should all go well, LY-CoV555 will soon hit the market. However, that’s only one small piece of the opportunity here.

Ely Lilly’s claim to fame is a brand-name diabetes drug known as Trulicity. In 2019, the drug resulted in more than $1.2 billion in revenue for the company and its investors. This trend is likely to continue. Moreover, the company’s other diabetes products make up one of the most impressive product portfolios in the diabetes space.

Another massive opportunity Ely Lilly brings to the table is a brand-name drug known as Verzenio. Currently, the treatment is approved for patients with metastatic breast cancer and advanced breast cancer, but it’s not yet approved for early-stage breast cancer.

Recently, Eli Lilly reported positive data from a Phase 3 clinical trial that suggested it will win that approval as well. Should Eli Lilly break into the early-stage breast cancer market with Verzenio, it would be a game-changer for the company and its investors.

According to Reports and Data, the breast-cancer market will grow to be worth more than $40 billion annually by the year 2026. With a treatment that could become the standard of care in this market if it receives approval in early-stage indications, the $1.2 billion generated through the sale of Verzenio in 2019 could look like a drop in the bucket compared to the potential sales the company will generate in the years ahead.

All in all, Eli Lilly is a health care company with eggs in many baskets. The company has a proven history of creating blockbuster products, and with opportunities in diabetes, COVID-19, and oncology, more blockbusters are likely ahead. All in all, you should be watching Eli Lilly stock closely.

Final Word

Investing in the health care industry isn’t only rewarding from a financial standpoint; it can also be rewarding from a social and ethical perspective. Few activities feel better than making money while simultaneously helping others.

While there are plenty of benefits to investing in the health care sector, there are also plenty of risks. As a result, it’s important to do your research and get a full understanding of just what you’re investing in before you throw your dollars in the ring.

Nonetheless, if you make the right decisions in the health care space, they have the potential to generate tremendous gains.

Do you invest in health care stocks? Do you lean toward companies working to find medical solutions to conditions that are important to you?

Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.

Joshua Rodriguez
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

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