Given the elevated volatility of the market this year, you would think more investors would be enthused to explore the potential of healthcare industry stocks. It may not be all that exciting at the moment, but that’s kind of the point.
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One of the more compelling aspects of the healthcare industry is that it’s full of large, successful companies serving constant consumer needs. In other words, these businesses tend to be highly non-cyclical and better able to ride out broader market volatility.
If you’re looking for established companies with far less dependence on economic shifts, you don’t have to search far to find intriguing healthcare businesses with durable growth stories. Here are three such names to add to your list of buy-and-hold investments this month.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals (NASDAQ: VRTX) may not be a household name for some investors, but this company has rapidly evolved from one of a long list of promising biotechs to a profitable, multibillion-dollar business over the last decade. It can attribute this growth story to the success of its cystic fibrosis medicines. With the distinction of being the only company with approved pharmaceutical therapies that target the underlying cause of this rare genetic disorder, demand for Vertex’s products is high and consistent.
Over the last five years alone, Vertex has seen its annual profits soar by about 60% while revenue skyrocketed by nearly 200%. Although the company estimates that there could be as many as 20,000 cystic fibrosis patients in core markets who could benefit from its medicines but aren’t yet taking them, Vertex is looking to expand its footprint within other swaths of the rare disease drug market.
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The company is awaiting approval decisions from regulators for what could easily be its next blockbuster product: exa-cel. Not only could exa-cel pose the first functional cure for two rare types of blood disorders, but it would be the first CRISPR therapy to garner regulatory approval. Vertex has set its sights on other lucrative markets, too.
For example, it’s developing a stem cell therapy for Type 1 diabetes, which it hopes could be a functional cure for the condition. Bear in mind that there are roughly 2.5 million Type 1 diabetics just in North America and Europe. The strong demand for its current products and the fact that Vertex focuses on large patient populations with rare diseases that have few or minimal effective treatment options both bode well for the future of this business. Long-term shareholders could enjoy a piece of that pie.
2. Intuitive Surgical
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Intuitive Surgical (NASDAQ: ISRG) is a medical device company that specializes in surgical robotics systems. Since its first da Vinci surgical system was approved by the U.S. Food and Drug Administration more than two decades ago, the company has remained the indomitable leader in the multibillion-dollar surgical robotics space.
Fast forward to today, and the company controls a roughly 80% share of this industry. Its flagship da Vinci surgical system is approved for use across a range of procedures, from cardiac to gynecologic to general surgeries. The company also sells the Ion system, used specifically for lung biopsies.
In 2022 alone, Intuitive Surgical raked in profits of $1.3 billion on revenue of $6.2 billion. Currently, the company has 8,042 da Vinci surgical systems installed for hospitals and other healthcare providers around the world. It delivers these systems to customers under purchase, operating lease, or even usage-based agreements.
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It’s also worth pointing out that as lucrative as sales or leases of Intuitive Surgical’s systems are — upwards of $2 million a pop in some cases — the company still makes most of its money from recurring sources of revenue. For example, the company sells replacement tools and instruments for its systems, accompanying software, training courses, and customer support services. The adoption of robotic-assisted surgery is still in its nascent stages, paving a long runway of growth ahead for this established business.
3. Teladoc
Teladoc (NYSE: TDOC) certainly hasn’t garnered the same accolades from investors in the last year it did earlier in the pandemic, but that doesn’t mean the best days are behind the healthcare giant. The company is slowly but surely righting its profitability issues, and the days of multibillion-dollar impairment charges seem to be in the rearview mirror.
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Teladoc reported $652 million in revenue in the second quarter of 2023, up 10% from the year-ago period. That revenue figure was roughly an even split between its integrated care segment, which features a range of wellness services that it sells to enterprise customers like insurers and employees, and its BetterHelp segment, which includes virtual therapy and other wellness services that it primarily sells directly to patients.
The healthcare company’s bottom line was still in the red. However, that improved 98% year over year to $65 million, compared to the blistering $3.1 billion net loss it reported in the same quarter in 2022.
Teladoc also generated free cash flow of $65 million in the three-month period. The company still has work to do to regain the faith of investors. Demand for its broad selection of virtual care services is steadily growing, though, both from healthcare providers and healthcare consumers. As one of the biggest players in the telehealth space, Teladoc can benefit from the expansion of this industry for many years to come.
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