With the exception of energy and utilities, all sectors of the S&P 500 are in the red for the year. Of the losing sectors, healthcare stocks have held up relatively well, outperformed only by consumer staples.
This relative strength can be attributed primarily to two factors. First, with the country putting the coronavirus pandemic in its rearview, people have stopped putting off routine and elective healthcare. Second, the Democratic-controlled Congress recently passed new healthcare provisions that were less onerous than some feared.
While the Inflation Reduction Act was billed by CNBC as giving Medicare “historic new powers over drug prices,” it only gives the federal government the ability to negotiate the prices of the 10 drugs it pays the most for and not until 2026. These are drugs that have been on the market for a long time and do not have a generic or other competitor. That means that the new law will not affect the vast majority of drugmakers. Nor does the bill include any other major provisions that will negatively affect the healthcare sector.
With investors less worried about increased regulation in the sector, now is a great time to buy the best healthcare stocks.
| ILMN | Illumina | $210.35 |
| REGN | Regeneron Pharmaceuticals | $724.32 |
| CCRN | Cross Country Healthcare | $26.66 |
Illumina (ILMN)
Illumina (NASDAQ:ILMN) is in the genomic analysis business, which involves selling tools that enable scientists to analyze DNA. The company is performing fairly well given the tough macroeconomic environment.
For the second quarter, earnings per share came in at 57 cents, well above the consensus estimate of 36 cents. Revenue missed estimates by $60 million, though, rising 3.2% year over year to $1.16 billion. Citing macroeconomic concerns and unfavorable foreign exchange rates, management lowered its annual revenue guidance to a 4% to 5% increase, down from 14% to 16% growth previously. And diluted earnings per share are now expected to be in the range of $2.75 $2.90 for 2022.
Despite the earnings miss and lowered forecast, SeekingAlpha noted that Citigroup added ILMN stock to “its 90-day positive catalyst watch,” citing “pricing power and favorable bioprocessing trends outside COVID.”
Speaking of potential positive catalysts, Illumina is reportedly in talks to divest its Grail subsidiary, which has developed a blood test that, according to the firm, “can detect over 50 types of cancers.” Illumina acquired Grail last year for $7.1 billion before getting the OK from European Union antitrust regulators. In all likelihood, Illumina will either sell Grail, greatly strengthening its cash position, or spin off part of the firm to Illumina shareholders. In either scenario, ILMN stock should rally significantly.
Regeneron Pharmaceuticals (REGN)
Next up on my list of healthcare stocks to buy is Regeneron Pharmaceuticals (NASDAQ:REGN). Shares of the biotechnology company are up 15% year to date and hit a new all-time high this week following the release of positive clinical data that should significantly boost sales of its most lucrative drug, Eylea.
Administered through injections, Eylea was already approved in the U.S. for the treatment of vision problems caused by diabetic macular edema and wet age-related macular degeneration. The new studies showed the efficacy of a higher dose administered less frequently (12 or 16 weeks versus eight weeks currently). Less-frequent injections should make the drug more appealing to patients. It will also help Illumina stave off competition from a similar drug made by Roche (OTC:RHHBY) that only requires some patients to receive doses every 12 or 16 weeks.
The company’s revenue is expected to decline this year, but analysts are calling for 6% growth in 2023. And with a consensus EPS estimate of $38.34 for next year, REGN stock is trading with an attractive forward price-earnings ratio of 18.9.
Cross Country Healthcare (CCRN)
Finishing out my list of top healthcare stocks to buy is Cross Country Healthcare (NASDAQ: CCRN), which provides talent management and other consultancy services for U.S. healthcare clients. The company has benefitted from the tight labor market over the past year and a half.
Revenue doubled in 2021 to $1.68 billion, while net income was up an eye-popping 1,115% over 2020 to $132 million. And adjusted EPS came in at $3.06 compared to $0.46 in the prior year.
On average, analysts expect revenue to increase nearly 60% this year to $2.67 billion and for EPS to jump 53% to $4.69. That means CCRN stock is trading at just 5.7 this year’s earnings estimate.
Continued Covid-19 hospitalizations and an aging population bode well for Cross Country Healthcare in the near to medium term and the long term, respectively.
Investor’s Business Daily gives CCRN stock ” a perfect 99 EPS Rating, a 97 Composite Rating and a 95 Relative Strength Rating.”
On the date of publication, Larry Ramer held a long position in ILMN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.