3 Healthcare Stocks to Buy Now: Q3 Edition
After taking a backseat in the first half, the healthcare sector is finally coming to life. The rising odds of a Trump presidency have improved prospects for the industry, validating the case for increasing positions in healthcare stocks to buy now.
Regardless of who wins in November, the long-term story for healthcare stocks remains very attractive. First, healthcare spending will outpace GDP growth over the next decade due to increased social care spending and more health-conscious populations. For instance, in the U.S., the Centers for Medicare & Medicaid Services predicts national health expenditures to rise 5.6% annually between 2023 and 2032.
Considering the aging baby boomer population, spending trends can only rise from current levels. In particular, Medicare spending will experience a surge as more boomers enroll. Moreover, spending on physician and clinical services, pharmaceuticals and medical devices keeps rising.
The following three healthcare stocks to buy now are well-positioned to benefit from this increased spending. What’s more, they trade at reasonable valuations, presenting substantial upside.
iRhythm Technologies (IRTC)
This medical device maker has a revolutionary product for the heart health diagnostic market. iRhythm Technologies (NASDAQ:IRTC) offers a cardiac monitoring solution, Zio XT, for heart rhythm monitoring, enabling the detection of a heart rhythm disorder called atrial fibrillation. This condition causes 450,000 hospitalizations annually in the U.S., so Zio XT is a lifesaver.
The moat around iRhythm Technologies is cemented by its AI algorithms. While the hardware patch collects patient data, its proprietary AI engine automates the analysis. iRhythm has collected over 1.8 billion hours of heart rhythm data, enabling it to generate accurate reports for clinicians.
Still, there is a significant growth opportunity from now on. First, according to the American Heart Association, 12 million people in the U.S. face a risk of undiagnosed cardiac arrhythmias by 2030. Secondly, its next-generation product, Zio Monitor, is more comfortable for patients and has better economics. Thirdly, international markets represent de minimis revenues today but can grow to 25% of revenues.
With such a compelling growth story, iRhythm Technologies is among the top healthcare stocks to buy now for growth. Wolfe Research expects high teens revenue growth and argues that the stock deserves a premium multiple. In line with this view, they have an “outperform” rating and a $115 price target.
GE HealthCare Technologies (GEHC)
GE HealthCare Technologies (NASDAQ:GEHC) is a healthcare technology company spun off from General Electric in January 2023. It’s the world’s largest medical imaging provider and will profit from a shift to precision care. Moreover, the industry dynamics are very favorable, with only two main competitors, Siemens Healthineers (OTCMKTS:SMMNY) and Koninklijke Philips N.V. (NYSE:PHG).
This healthcare company is a global operator with revenues spread across the U.S., Europe and China. Its ultrasound, PET and CT scans, X-ray and MRI machines are mission-critical for hospitals, guaranteeing predictable revenues. Moreover, 50% of revenues are from servicing, consumables and spare parts, hence recurring.
Going forward, GEHC is one of the healthcare stocks to buy now due to its imaging technology leadership and potential margin improvements. Under more focused management after its spinoff, it can improve its operating margins from the current mid-teens to match Siemens Healthineers levels in the mid-20s.
Moreover, there is a substantial tailwind from growing digital revenues. An installed base of over 4 million machines provides data analytics needed to generate AI-enabled software revenue. Considering the significant revenue opportunities and margin improvements ahead, the stock is undervalued at 19 times forward earnings.
Masimo (MASI)
Masimo (NASDAQ:MASI) is a sign monitoring equipment and software provider with significant upside. The company plans to spin off its consumer business after pressure from activist Politan Capital. These plans could unlock substantial value for the company.
At its core, Masimo offers sensors to monitor blood hemoglobin content, oxygen levels and pulse rates. This is a lucrative business since 85% of revenues come from selling disposable sensors that provide recurring revenues.
The big drag on MASI stock has been the acquisition of Sound United in 2022. The company hoped this acquisition would provide the distribution assets it needed to release and market its sign-monitoring smartwatch. However, investors have viewed this acquisition as a distraction that added debt.
With a spinout of its audio and consumer healthcare products on the way, Masimo is among the high-quality healthcare stocks to buy now. On July 8, Reuters reported that Masimo had received a $950 million offer for this business. Moreover, analysts expect Masimo will retain a substantial portion of the Apple (NASDAQ:AAPL) lawsuit award.
Under this spinout plan, Well Fargo sees upside and has an “overweight” rating and a $160 price target. Investors will attach a higher multiple as Masimo returns its focus to its core healthcare and telehealth products business.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
