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Meet The "Magnificent Seven" of Healthcare Stocks

Motley Fool - Mon Apr 1, 3:30AM CDT

The original "Magnificent Seven" is a group of tech stocks that have generally delivered market-beating returns in the past decade. Creating a similarly prominent group in another sector like healthcare isn't an exact science. So, some might not agree with the list below. That said, though, all seven healthcare stocks in my "Magnificent Seven" of the industry share the following characteristics. First, they are all leaders in their respective niches.

Second, they have soundly outperformed the market over the past decade. Third, they all have solid long-term prospects. With that said, here is my Magnificent Seven of healthcare stocks: Eli Lilly(NYSE: LLY), Novo Nordisk(NYSE: NVO), Vertex Pharmaceuticals(NASDAQ: VRTX), AbbVie(NYSE: ABBV), Intuitive Surgical(NASDAQ: ISRG), HCA Healthcare(NYSE: HCA), and UnitedHealth Group (NYSE: UNH).

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Eli Lilly and Novo Nordisk

It makes sense to group these two pharmaceutical giants. Both are leaders in the diabetes and obesity care markets, where they have been competing for decades. Eli Lilly earned approval last year for Zepbound, an anti-obesity treatment that should go on to generate billions in revenue. Novo Nordisk's competitor in this area, Wegovy, is still growing its sales at an incredible pace. Further, both drugmakers have incredibly deep pipelines.

Novo Nordisk is still looking to innovate in the obesity market. It recently reported positive results from a phase 1 study for a promising candidate. Meanwhile, Eli Lilly earned approval for several new products last year. It is awaiting word from U.S. regulators for donanemab, a potential Alzheimer's disease therapy. Eli Lilly also delivered promising phase 1 results for a gene therapy that could treat hearing loss.

Both companies should continue delivering excellent financial results and stock market performances. Expect both to be trillion-dollar stocks within a decade.

Vertex Pharmaceuticals

Vertex Pharmaceuticals has been riding the wave of its dominance in the market for therapies that treat a rare disease called cystic fibrosis (CF). Though highly innovative in this area, in which it continues to make headway, the biotech is now looking for diversification. Reducing its exposure to its core therapeutic area isn't a bad idea. Vertex Pharmaceuticals recently earned approval for a gene-editing treatment called Casgevy.

It developed this therapy in collaboration with CRISPR Therapeutics. Casgevy is a one-time curative therapy for sickle cell disease and transfusion-dependent beta-thalassemia, two rare blood diseases that have been incredibly difficult to treat or manage. This milestone was a significant breakthrough for Vertex, but more are coming. The drugmaker is inching closer to launching yet another CF medicine and a brand-new therapy for acute pain.

Vertex has several key products in its pipeline as well. The biotech looks set to maintain its momentum for a long time.

AbbVie

AbbVie became a stand-alone company in January 2013 when it split from Abbott Laboratories. Since then, the drugmaker has been a market-beater, largely thanks to its superstar immunology drug, Humira. The rheumatoid arthritis medicine ran out of patent exclusivity last year, but AbbVie is managing what is one of the most important patent cliffs in the history of the industry (Humira is the best-selling drug ever) pretty well.

Though sales have been declining since last year, management expects that to change by 2025. AbbVie's Skyrizi and Rinvoq are Humira's heirs. Finding a duo of medicines that can replace $21.2 billion in annual peak sales is difficult, but Skyrizi and Rinvoq will exceed that total. Management expects them to rack up combined sales of $27 billion by 2027.

That speaks volumes about AbbVie's innovative potential, especially in immunology. The company has other promising products and pipeline candidates, and it is a Dividend King. Investors, including income-seekers, can't go wrong with this stock.

Intuitive Surgical

Intuitive Surgical is the company behind the da Vinci system, a robotic-assisted surgery (RAS) device. The healthcare leader has pioneered the use of RAS machines, which allow surgeons to perform minimally invasive surgeries. Unlike with open surgeries, doctors don't need to make large incisions to access and get a full view of the organs they are operating on. The da Vinci system is equipped with tiny instruments that boast incredible maneuverability.

Intuitive Surgical had 8,606 of its da Vinci systems installed as of the end of 2023. As long as demand for these machines grows and the volume of procedures performed with them increases, Intuitive Surgical's revenue and earnings should continue to move in the right direction. Given the aging population and the fact that only 5% of surgeries that could be performed robotically currently are, it looks like Intuitive Surgical has a long runway for growth.

UnitedHealth Group and HCA Healthcare

UnitedHealth Group and HCA Healthcare are two important players in the U.S. healthcare system. The former is one of the largest health insurers in the country and offers pharmacy management solutions and data and analytics services to other insurers through its subsidiary Optum. HCA Healthcare is one of the largest hospital chains in the country, with facilities that span much of the U.S., although it is particularly concentrated in Florida and Texas. Though both companies saw their businesses disrupted during the worst of the pandemic and suffered somewhat due to economic issues that followed, their operations are resilient.

Pandemic-related troubles have mostly subsided. UnitedHealth Group and HCA Healthcare continue to march forward, and both should also benefit from the aging population. UnitedHealth Group's Optum will see a rise in demand for the services it offers as insurance claims rise, while HCA Healthcare's occupancy rates and volume of medical care services will also move in the right direction. In short, both stocks have plenty of growth fuel left in their tanks.

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Prosper Junior Bakiny has positions in Intuitive Surgical and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Abbott Laboratories, CRISPR Therapeutics, HCA Healthcare, Intuitive Surgical, and Vertex Pharmaceuticals. The Motley Fool recommends Novo Nordisk and UnitedHealth Group. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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