These undervalued health care stocks could have big upside.
After lagging behind the market in 2021, health care stocks have outperformed the S&P 500 so far in 2022. Some health care stocks are still experiencing tail winds from the COVID-19 pandemic, while others are benefiting from a rebound in elective procedures. Health care stocks are an excellent defensive play in an environment of rising interest rates and economic uncertainty. Health care valuations are also attractive, with the sector currently trading at a forward price-earnings ratio that represents a 10% discount to its historical average. Here are 10 of the best health care stocks to buy in 2022, according to CFRA analysts.
Merck & Co. (ticker: MRK)
Merck is one of the world’s largest pharmaceutical companies. Merck recently reported 28% revenue growth in the second quarter, including 26% sales growth from leading cancer drug Keytruda. Sales for Merck’s HPV vaccine Gardasil were also up 36% in the quarter. Analyst Stewart Glickman says Keytruda remains the cornerstone of Merck’s growth thesis, and it’s now approved for six different early-stage cancer indications. Glickman says Merck will continue to benefit from COVID-19 diagnoses in the near term and from its diversified pipeline of drug candidates in the long term. CFRA has a “strong buy” rating and $101 price target for MRK stock, which closed at $89.19 on Aug. 10.
Pfizer Inc. (PFE)
Since the beginning of 2020, shares of COVID-19 vaccine maker Moderna Inc. (MRNA) are up more than 800% and shares of Pfizer’s COVID-19 vaccine partner BioNTech SE (BNTX) are up more than 400%. Meanwhile, Pfizer shares are up just 36% over that same stretch. Investors may be disappointed with the Pfizer vaccine’s lack of impact on its stock, but Glickman says Pfizer’s 90% U.S. market share in oral COVID-19 treatments is a bullish catalyst moving forward, especially if its Paxlovid authorization is expanded to younger age groups. CFRA has a “strong buy” rating and $68 price target for PFE stock, which closed at $49.95 on Aug. 10.
UnitedHealth Group Inc. (UNH)
UnitedHealth is the largest U.S. managed health care company. Analyst David Holt says UnitedHealth’s expansion into several new Affordable Care Act (ACA) state marketplaces will be a positive tail wind for the stock. In addition, if the U.S. Justice Department approves UnitedHealth’s $8 billion acquisition of Change Healthcare, Holt says UnitedHealth’s Optum unit will have opportunities to expand its technology and cut costs. Holt projects 12% revenue growth for UnitedHealth in 2022 and 8% growth in 2023. He also estimates that Optum will add 600,000 new patients this year. CFRA has a “strong buy” rating and $665 price target for UNH stock, which closed at $537.72 on Aug. 10.
Molina Healthcare Inc. (MOH)
Molina Healthcare provides managed health care services for government-sponsored health care programs, especially Medicaid. Holt says Molina is particularly attractive relative to peers given its potential for 10% year-over-year premium growth in 2023, excluding redemptions. In addition, he says the company’s acquisition of Affinity Health Plan will help it navigate the uncertainty associated with medical cost trends. He projects the acquisition of Magellan Complete Care will help Molina grow premium revenue by 40% in 2022, and Affinity should help that growth continue in 2023. CFRA has a “buy” rating and $375 price target for MOH stock, which closed at $329.77 on Aug. 10.
Avantor Inc. (AVTR)
Avantor produces and distributes chemicals, reagents, laboratory products and equipment to biopharmaceutical, health care and other industries. In a difficult market in 2022, Avantor shares have significantly lagged the S&P 500. The stock is down 32% year to date, making it the worst performer on this list. Analyst Ana Garcia says the 2022 weakness is a buying opportunity for long-term investors. She says recent acquisitions of Masterflex, RIM Bio and Ritter GmbH have helped Avantor improve its competitive position in single-use bioprocessing solutions and laboratory automation. CFRA has a “buy” rating and $40 price target for AVTR stock, which closed at $28.50 on Aug. 10.
Centene Corp. (CNC)
Centene is a managed-care organization that specializes in Medicaid, military health care and ACA marketplace plans. Holt says Centene has impressive growth prospects, and its management team is focused on long-term margin expansion. He says medical loss ratio, or MLR, uncertainty creates near-term risk for Centene’s profitability, but the company has opportunities to expand Medicare MLR in 2023 and beyond. Holt projects 13% revenue growth for Centene in 2022, but says revenue growth will be flattish in 2023 after outsized growth in 2020 and 2021. CFRA has a “buy” rating and $103 price target for CNC stock, which closed at $94.82 on Aug. 10.
Cigna Corp. (CI)
Cigna is one of the largest U.S. managed-care organizations and pharmacy benefit managers. Analyst Arun Sundaram says Cigna shares are attractively valued at current levels and are trading at a discount to many peers despite the company’s solid long-term growth prospects. Growth catalysts include expanding in key international markets and increasing its digital, home and behavioral health offerings. Sundaram projects just 3% revenue growth in 2022 and 5% growth in 2023. The stock currently trades at just 10.8 times Sundaram’s 2023 earnings estimate. CFRA has a “buy” rating and $314 price target for CI stock, which closed at $287.07 on Aug. 10.
Viatris Inc. (VTRS)
Viatris is a global pharmaceutical company that formed from the 2020 merger of Mylan with Upjohn, Pfizer’s off-patent drug division. Glickman says Viatris shares are attractively valued, trading at only around 2.8 times his 2022 earnings per share estimate. In February, Viatris announced several strategic initiatives that will shift focus away from the company’s biosimilar business and toward its generics, complex generics and off-patent drug brands. Glickman is bullish on recent Viatris launches of generic versions of AbbVie Inc.’s (ABBV) drug Restasis and Bristol-Myers Squibb Co.’s (BMY) drug Revlimid. CFRA has a “buy” rating and $12 price target for VTRS stock, which closed at $10.77 on Aug. 10.
Catalent Inc. (CTLT)
Catalent is a contract development and manufacturing organization for the pharmaceutical and biotechnology industries. Garcia says Catalent has significant upside potential for investors with high risk tolerance. She says demand from COVID-19 therapies will continue as new variants emerge, and the company’s viral vector offerings will be a strong point for at least the next 12 months. In the longer term, Garcia says cell and gene therapy research and development will be a growth source for Catalent. Garcia projects 19.7% revenue growth in 2022. CFRA has a “buy” rating and $124 price target for CTLT stock, which closed at $112.84 on Aug. 10.
Vertex Pharmaceuticals Inc. (VRTX)
Vertex Pharmaceuticals is a biopharmaceutical company that specializes in developing therapies to treat cystic fibrosis. Vertex shares have bucked the bearish market trend so far in 2022. The stock is up about 35% so far this year as of Aug. 10, making it the best-performing stock on this list. Glickman says Vertex has a dominant first-mover advantage in the cystic fibrosis market, and its sickle cell disease and beta thalassemia treatment programs create potential for Vertex to expand outside of its core cystic fibrosis business. Glickman is particularly optimistic about Vertex’s CTX001 sickle cell treatment. CFRA has a “buy” rating and $272 price target for VRTX stock, which closed at $295.77 on Aug. 10.
10 best health care stocks to buy for 2022:
— Merck & Co. (MRK)
— Pfizer Inc. (PFE)
— UnitedHealth Group Inc. (UNH)
— Molina Healthcare Inc. (MOH)
— Avantor Inc. (AVTR)
— Centene Corp. (CNC)
— Cigna Corp. (CI)
— Viatris Inc. (VTRS)
— Catalent Inc. (CTLT)
— Vertex Pharmaceuticals Inc. (VRTX)
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Update 08/11/22: This story was published at an earlier date and has been updated with new information.