Because of the diversity of businesses represented in the broader stock market, it's a sure bet that over any time period, some stocks will do remarkably well, some will perform very poorly, and most will be somewhere in between. Having just a few stocks in your portfolio that end up in the first category can compensate for quite a few losers that might also be in there.
Here are two healthcare stocks that have made shareholders far richer in recent years. Either still has the potential to be great buys for the long haul and help your fortune grow. Here's why.
1. Cigna: A solid health insurer at a deep discount
When you add up the customer relationships in its Cigna Healthcare health insurance plans business and it Evernorth Health Services pharmacy benefits management business, Cigna(NYSE: CI) has almost 166 million customers. Higher demand for its services, higher insurance premiums, and acquisitions all combined to help revenue more than sextuple from $29.1 billion in 2012 to $180.5 billion in 2022.
That significant customer base and revenue growth trajectory has investors intrigued and helped earn it an $82 billion market capitalization, which is the fourth-largest among healthcare plan companies on the planet.
Someone investing $5,000 in Cigna stock in 2013 would be valued at $18,620 with dividends reinvested. That tops the $15,900 that the same investment in an ETF mimicking the S&P 500 index would be worth now with dividends reinvested.
As the demand for pharmacy benefits management grows and health insurance plan usage continues to rise, Cigna should keep doing well. Analysts predict earnings will compound by 11.1% annually through the next five years, which is comparable to the industry peer average of 11.9%.
Investors also get access to a 1.7% starting dividend yield from Cigna, which is slightly above the 1.6% yield of the S&P 500 index. With a dividend payout ratio set to register at less than 20% in 2023, the dividend also appears to have plenty of room for future growth. Dividend growth investors can pick up shares of Cigna at a forward price-to-earnings (P/E) ratio of 10. That's well below the healthcare plans industry average forward P/E ratio of 13.6, which makes the stock a smart buy at the current $282 share price.
2. LeMaitre Vascular: Niche business models can succeed too
Some of the best businesses in the world fly under the radar of many retail investors. Outside of vascular surgeons, company employees, and seasoned investors, there's a very good chance you aren't familiar with the peripheral vascular disease medical device maker LeMaitre Vascular(NASDAQ: LMAT). The company's products take the No. 1 or No.2 spots for market share in nine out of 12 product categories, including embolectomy catheters, carotid shunts, and valvulotomes.
This outperformance could be poised to persist: The market research company Mordor Intelligence anticipates that the global peripheral vascular devices market will grow from $12.8 billion in 2023 to $15.9 billion by 2028. Along with additional product launches and bolt-on acquisitions, this is why analysts expect 10% annual earnings growth from the company for the next five years.
Earnings growth and market dominance have the interest of investors. It's a big part of why a $5,000 investment in LeMaitre 10 years ago is now worth a staggering $46,200 today (with dividends reinvested).
Granted, LeMaitre's 1% dividend yield probably isn't going to impress investors. But that percentage is down because the stock price performed so well. The company has dividend growth potential it can still tap into. That's because the dividend payout ratio is around 44%.
LeMaitre's forward P/E ratio of 37.3 isn't cheap relative to the medical instruments & supplies industry average forward P/E ratio of 26.1. But based on its phenomenal track record, the current $56 share price is arguably still fair for long-term investors.
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