For years, one of the most dependable sectors, especially for more conservative investors, was health care, which included the top pharmaceutical and biotech stocks among other holdings. However, over the past five years, the sector, while delivering positive total returns, has massively underperformed some of the more popular sectors like technology. In fact, the S&P 500 Health Care Sector was up 10.8% over the past year, underperforming the S&P 500’s 19.1% return.
The decade-long expansion in the stock market faces a period of heightened volatility and risk, and the health care sector could benefit from a shift toward more defensive areas. In the sector, stocks we looked at have strong balance sheets, attractive dividend yields and improved cost structures.
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There always remains the risk for health care in an election year. There have been five presidential elections since 2000, and only once did health care outperform the S&P 500, but with the way the market looks now, trading at all-time highs, with bloated multiples, it might be time for a switch.
We screened the Merrill Lynch health care research database looking for large pharmaceutical leaders that also pay solid and dependable dividends. We found five that make sense for growth and income investors.
Abbott Labs
This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.
The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.
Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnosis cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.
Abbott Labs investors receive a 1.65% dividend. Merrill has a Buy rating with a $95 price target, though the Wall Street consensus target is higher at $100.46. The shares closed trading on Monday at $88.30.
AstraZeneca
This stock still offers investors a solid entry point after seesawing last year. AstraZeneca PLC (NYSE: AZN) is a global, innovation-driven biopharmaceutical business that focuses on the discovery, development and commercialization of prescription medicines, primarily for the treatment of cardiovascular, metabolic, respiratory, inflammation, autoimmune, oncology, infection and neuroscience diseases. AstraZeneca operates in over 100 countries, and millions of patients worldwide use its innovative medicines.
This company also has an outstanding pipeline, especially in oncology. The broad pipeline of next-generation investigational medicines is focused on four main disease areas: ovarian, lung, breast and haematological cancers. These are being targeted through four key platforms: immuno-oncology, the genetic drivers of cancer and resistance, DNA damage repair and antibody drug conjugates.
The company reports Wednesday, and the analyst said this in anticipation:
Fiscal year core EPS of $3.57, on product sales of $23.7 billion, +13% year-over-year. Questions for the call include launch drivers, leverage and China. Fiscal year 2020 EPS guide likely $4.00-4.20, with our $4.12, below consensus of $4.20. Buy driven by best in class growth and launches that offer upside to consensus.
Shareholders receive a 2.83% dividend. Merrill’s price objective for the stock is $51.70, and the consensus target price is $53.05. AstraZeneca stock closed Monday’s trading at $49.91 a share.
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