You don't have to invest in artificial intelligence or the latest tech company to earn great returns on your investments. The healthcare industry is full of promising investment opportunities of its own.
DexCom (NASDAQ: DXCM), Eli Lilly (NYSE: LLY), and West Pharmaceutical Services (NYSE: WST) are three stocks that have each turned $100,000 investments into $1 million over the past 10 years.
Let's take a closer look at why these three businesses have done so well and better understand whether their stocks are still good buys.
Diabetes company DexCom has been hugely successful over the years. It makes continuous glucose monitoring (CGM) devices that help people with diabetes manage their glucose levels. And like with any device, there are always innovations and improvements that give users an incentive to upgrade to the latest iteration. DexCom's newest CGM, the G7, is smaller than the previous model and has a more discrete design, requires less warm-up time, and the company says it is "the most accurate CGM."
As the number of people with diabetes increases, so too does the potential user base for one of DexCom's CGMs. Plus, as the company makes enhancements to those products, that can also drive more revenue growth for the business. The company's revenue totaled $2.9 billion last year, growing by 19% year over year. With profit margins of around 12%, the business's bottom line is also in good shape to rise along with revenue.
Over the past 10 years, DexCom has turned a $100,000 investment into its business into more than $1.5 million today. Although it's a pricey stock to own at more than 100 times its trailing earnings, given the long-term growth opportunities the business possesses, it could still make for a great healthcare stock to buy for the long haul.
2. Eli Lilly
Pharmaceutical giant Eli Lilly has been a great investment to own, as it would have turned a $100,000 investment 10 years ago into approximately $1.1 million today. Its top line wasn't all that impressive last year, as revenue of $28.5 billion was only slightly higher than the $28.3 billion that it generated in the previous year.
But it's the company's future growth prospects that have investors bullish about the business. Diabetes drug Mounjaro generated just under $1 billion in revenue last quarter, for the period ending June 30. It's a promising drug that analysts have high hopes for, with some estimating that its peak annual sales could top $100 billion.
The potential comes from its ability to be a highly effective weight-loss treatment. In clinical trials, some patients lost as much as 26% of their body weight over a 20-month timeframe. And with many weight-related illnesses that it could potentially help treat, the opportunities for the drug are through the roof.
Eli Lilly is a great example of when earnings multiples may be of little use, given how much upside there may be in the long run. While the stock looks expensive, trading at around 80 times its profits, it could still look cheap if Mounjaro gets close to hitting its potential. If you're willing to buy and hold for years, Eli Lilly is still a stock worth buying right now.
3. West Pharmaceutical Services
Another top healthcare stock to own over the past decade has been West Pharmaceutical Services. The company designs and makes drug delivery and packaging systems. Its products include seals, vials, and stoppers. It has benefited from the pharmaceutical industry's growth as its revenue has doubled over the past decade, and its bottom line has increased at an even faster rate.
This year, the company expects sales to come in at just under $3 billion, reflecting no more than 4% revenue growth as a drop in demand for COVID-19 products is weighing down the business. But in the long run, there's still much more growth potential ahead for the business.
At nearly 60 times earnings, West Pharmaceutical Services is technically the cheapest stock on this list. Although investors might still find it expensive, if you're hanging on for the long term, this can also be a good investment as the business is relatively stable and it reports strong profit margins of 18%.
10 stocks we like better than DexCom
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and DexCom wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of September 18, 2023