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3 Top Healthcare Stocks to Buy for September

Motley Fool - Sat Sep 9, 8:15AM CDT

Healthcare is an evergreen frontier for investing. An endless need for better treatments and cures demands innovation and growth, which isn't a bad place to find long-term winners you can stick in a diversified portfolio.

But while the broader market has had a pretty strong year thus far, it seems like the healthcare sector might be out of style now. That's great news for long-term investors looking for bargains. Here are three quality healthcare stocks you should consider buying this month.

1. The cornerstone of U.S. healthcare

UnitedHealth Group(NYSE: UNH) might be the most critical cog in America's healthcare machine. It's a sprawling enterprise that features two businesses, UnitedHealthcare and Optum. UnitedHealthcare is the company's insurance arm, and provides healthcare benefits to over 150 million people through various individual, employer, and government plans. Optum itself is a three-pronged segment that delivers care, Rx services, and data analytics to patients and professionals in healthcare.

UNH EPS LT Growth Estimates Chart

UNH EPS LT Growth Estimates data by YCharts

The company is one of the world's largest; annual revenue is nearing $350 billion. Additionally, the company is still growing at a healthy clip. Analysts believe earnings-per-share (EPS) will increase by more than 12% annually over the long term. Considering the stock's forward P/E is just 19, that's a reasonable valuation considering its expected growth, working out to a PEG ratio of just 1.5.

2. A pharmaceutical bargain

Pfizer(NYSE: PFE) is one of the most seasoned pharmaceutical companies, formed from massive acquisitions over the years. It saw a resurgence during the pandemic when explosive demand for its COVID-19 vaccine created billions in profits. COVID-19 treatments did a staggering $56 billion in sales last year.

But fading demand for those products has begun to drag down Pfizer's growth outlook moving forward. Analysts believe earnings will shrink by more than 7% annually over the coming years.

PFE EPS LT Growth Estimates Chart

PFE EPS LT Growth Estimates data by YCharts

However, there is reason for hope. Pfizer's pandemic windfall filled its balance sheet with cash, which it's using to acquireSeagen for $43 billion. Seagen has an up-and-coming portfolio of cancer treatments that analysts believe could generate between $6 billion and $8 billion in annual sales.

Pfizer's existing business is also growing; management is guiding for between 6% and 8% in revenue growth for non-COVID-19 products in 2023. The stock's forward P/E is just 10 right now, so this could be an excellent opportunity to scoop up Pfizer for when growth returns.

3. Taking a shot at weight loss

Novo Nordisk(NYSE: NVO) isn't new to the pharmaceutical industry. It developed slow-acting insulin in the 1930s, and is one of the world's major insulin manufacturers today. But its weight-loss breakthroughs have elevated the company to a new level of success.

Novo Nordisk's Ozempic and Wegovy are GLP-1 drugs, which mimic a particular hormone in the brain to reduce appetite. Ozempic treats Type 2 diabetes, while Wegovy is approved for chronic weight management. The United States is the world's most lucrative healthcare market, and nearly 70% of citizens are obese or overweight, a potential goldmine for Novo Nordisk.

NVO EPS LT Growth Estimates Chart

NVO EPS LT Growth Estimates data by YCharts

Wegovy hit the market roughly two years ago. Analysts have dramatically increased their growth estimates for the company due to Wegovy and Ozempic's success. The stock is up more than 80% over the past year, but shares aren't as expensive as you might assume. The stock's PEG ratio of 1.8 comes from its forward P/E of 37 and estimated earnings growth rate of nearly 20%.

That's not a bargain, but the long-term runway of these weight-loss products should enable the stock to grow into its valuation over time.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Seagen. The Motley Fool recommends Novo Nordisk and UnitedHealth Group. The Motley Fool has a disclosure policy.

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