To say that hedge fund and mutual fund managers tend to follow the herd is an incredible understatement and always has been. While publicly they sometimes seem reticent to discuss their holdings, especially stocks they are short sellers of, the reality is managers tend to talk among themselves as they run in the same circles. Often those discussions are centered around their portfolios and what is in them.
Health care is one sector that continues to draw a ton of fund manager interest, and with good reason. In the frothy and seemingly full-valued market we have now, the S&P 500 is just 75 points shy of an all-time high again. So, we are looking to see what the large-cap fund managers own now at this elevated level.
A new RBC report examines the holdings of mutual fund and hedge fund managers across Wall Street. Today we look at the health care stocks that are favored in the ‘Lions of Large Cap” silo, which has most popular stocks across all large-cap fund style groups.
In addition, we screened our 24/7 Wall St. research universe database looking for firms that have Buy ratings on the stocks. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
AbbVie
This is one of the top pharmaceutical stocks picks across Wall Street, and 34% of the fund managers own the shares. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so in June of 2019 it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of this year.
AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.
Shareholders receive a 5.37% dividend. Morgan Stanley has a $108 price target on the shares. The Wall Street consensus price target is at $109.12, but AbbVie stock closed trading at $87.83 on Tuesday.
Bristol-Myers Squibb
This remains a solid pharmaceutical stock to own long-term, and 33% of the fund managers are long the shares. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.
The company reported strong second-quarter results that were largely ahead of Wall Street consensus, given the ongoing recognition of Celgene revenue. Bristol-Myers bought Celgene last year in a massive $74 billion acquisition. The posted quarterly earnings of $1.63 per share exceeded the Wall Street consensus estimate and were higher than the per-share earnings reported in the same period a year ago. Third-quarter results are due on November 5.
The dividend yield is 2.96%. The BofA Securities price target is $80, while the consensus target is $73.69. Bristol-Myers stock closed Tuesday at $61.13.
Johnson & Johnson
With a diverse product base and a very popular and solid brand, this is among the most conservative big pharmaceutical plays, and 44% of fund managers own the stock. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and raised its dividend this year for the 56th consecutive year. With everything from medical devices to over the counter health items and prescription drugs, the company remains one of the most diversified health care names on Wall Street.
The health care giant also has one of the most exciting pipelines of new drugs in the sector. That combined with the solid over-the-counter product business makes the stock an outstanding holding for conservative accounts with a long-term investment outlook. The company generates a little over half of its sales in international markets, which are expected to see higher spending on health care over the next 10 years and beyond.
Johnson & Johnson recently published data from an interim analysis of a Phase 1/ Phase 2A trial evaluating the company’s COVID-19 vaccine candidate Ad26.COV2.S. This follows the company’s announcement last week that it was advancing the vaccine into Phase 3, representing the fourth vaccine to enter late-stage testing in the United States.
While the data was promising, Johnson & Johnson halted clinical trials of its vaccine this week after a participant fell ill, the second time that a frontrunner developer has paused testing in the race to create a viable immunization against this coronavirus.
The $0.95 per share dividend was raised to $1.01 earlier this year, which equals a 2.72% yield. The $175 BofA Securities price target compares with the $164.59 consensus target. Johnson & Johnson stock closed at $148.36.
Merck
This remains a leading health care stock pick for conservative investors, and 39% of the fund managers hold the shares. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.
The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.
Merck purposely was cautious during the start of the pandemic when it came to vaccine development, but it is now slowly but surely ramping up its efforts into the clinic. The company, which has good form in creating a new vaccine against a sweeping threat after gaining approval for its Ebola vaccine, said in its second-quarter update that via its recent buyout of Themis, it is plotting a third-quarter start for human testing of its preclinical V591.
Merck stock investors receive a 3.02% dividend. Goldman Sachs recently upgraded the shares to Buy and raised the price target to $105 from $91. The consensus price target is $95.50, but shares were last seen trading at $80.71.
UnitedHealth
This is the only nonpharmaceutical company in the group, but a whopping 45% of the fund managers have bought shares. UnitedHealth Group Inc. (NYSE: UNH) is an American for-profit managed health care company that offers health care products and insurance services.
Its UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, midsized employers, small businesses and individuals; health and well-being services to individuals age 50 and older, addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; and Medicaid plans, Children’s Health Insurance Program, and health care programs; and health and dental benefits.
The OptumHealth segment provides access to networks of care provider specialists, health management services, care delivery, consumer engagement and financial services. This segment serves individuals through programs offered by employers, payers, government entities and directly with the care delivery systems.
The OptumInsight segment offers software and information products, advisory consulting arrangements, and services outsourcing contracts to hospital systems, physicians, health plans, governments, life sciences companies and other organizations.
OptumRx is the segment that provides pharmacy care services and programs, including retail network contracting, home delivery, specialty and compounding pharmacy, and purchasing and clinical. It also develops programs in areas such as step therapy, formulary management, drug adherence and disease/drug therapy management.
Shareholders receive a 1.52% dividend. Barclays just raised its price target on UnitedHealth stock to $365. That compares to the $346.20 consensus target and Tuesday’s closing price of $330.75.
These are five of the best dividend-paying health care stocks, all favored by large-cap portfolio managers. Given the surge in the market and the prices of some of these stocks, it makes sense to scale buy into a position, as it is very possible we could see some consolidation after a big run off the March and September lows.
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