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Healthcare stocks belong to companies that develop pharmaceuticals, manufacture medical devices or provide medical care or health insurance.
The sector’s strong numbers appeal to many investors: Health spending accounted for almost 18% of U.S. gross domestic product (GDP) at the end of 2019, and it’s expected to top $6 trillion annually by 2028.
If those numbers have you ready to load up on healthcare stocks, you’ve got thousands of options. To help you cut through the noise in your research, these are the 10 top healthcare stocks by market capitalization.
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Show Summary
- Best Healthcare Stocks of April 2023
- UnitedHealth Group Inc (UNH)
- Eli Lilly and Co (LLY)
- Novo Nordisk A/S (NVO)
- Pfizer Inc (PFE)
- Roche Holding AG (RHHBY)
- Thermo Fisher Scientific Inc. (TMO)
- Danaher Corp (DHR)
- Abbott Laboratories (ABT)
- Types of Healthcare Stocks
- Advantages of Investing in Healthcare Stocks
- Risks of Investing in Healthcare Stocks
- How to Buy Healthcare Stocks
Best Healthcare Stocks of April 2023
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UnitedHealth Group Inc (UNH)
Market Cap
$441 billion
5-Year Avg. Annualized Return
16.4%
10-Year Avg. Annualized Return
24.6%
Market Cap
$441 billion
5-Year Avg. Annualized Return
16.4%
10-Year Avg. Annualized Return
24.6%
Why We Picked It
UnitedHealth Group is the biggest publicly traded health insurance company in the U.S. by market capitalization. Through its network of companies, UnitedHealth offers numerous health insurance plans as well as owns Optum, which provides, among other things, healthcare benefits like health savings accounts (HSAs).
UnitedHealth was founded in 1977, and it has a strong track record of paying shareholders regular dividends. The company is headquartered in Minnesota and its provider networks span the country.
UNH Chartby TradingView
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Johnson & Johnson (JNJ)
Market Cap
$430 billion
5-Year Avg. Annualized Return
6.1%
10-Year Avg. Annualized Return
10.4%
Market Cap
$430 billion
5-Year Avg. Annualized Return
6.1%
10-Year Avg. Annualized Return
10.4%
Why We Picked It
While Johnson & Johnson is often thought of for its consumer products, it actually makes far more than Q-tips and baby powder. For example, researchers at the company developed one of the three FDA emergency authorized Covid-19 vaccines, the only single-shot option currently available. Started in 1886, J&J has a whopping 130,000 employees spread across operations in 60 countries.
JNJ Chartby TradingView
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Eli Lilly and Co (LLY)
Market Cap
$322 billion
5-Year Avg. Annualized Return
33.6%
10-Year Avg. Annualized Return
20.7%
Market Cap
$322 billion
5-Year Avg. Annualized Return
33.6%
10-Year Avg. Annualized Return
20.7%
Why We Picked It
Indiana-based pharmaceutical firm Eli Lilly employs more than 34,000 employees across 18 countries and sells its products in 120 different countries. The company was founded in 1876 by Colonel Eli Lilly, who was a veteran of the Civil War. One of the first products it developed was quinine, a medication used to treat malaria.
LLY Chartby TradingView
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Novo Nordisk A/S (NVO)
Market Cap
$308 billion
5-Year Avg. Annualized Return
22.3%
10-Year Avg. Annualized Return
14.1%
Market Cap
$308 billion
5-Year Avg. Annualized Return
22.3%
10-Year Avg. Annualized Return
14.1%
Why We Picked It
Headquartered in Bagsværd, Denmark, Novo Nordisk is led by CEO Lars Fruergaard Jørgensen, who also serves as vice president elect of the European Federation of Pharmaceutical Industries and Associations (EFPIA), of which Novo is a member.
Currently, Novo employs more than 45,000 people and sells its wares in over 160 countries. It has also been named one of the best companies to work for for over a decade and in 2012 was named the most sustainable company in the world by Canadian media company Corporate Knights.
NVO Chartby TradingView
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Merck & Co Inc (MRK)
Market Cap
$261 billion
5-Year Avg. Annualized Return
14.9%
10-Year Avg. Annualized Return
11.7%
Market Cap
$261 billion
5-Year Avg. Annualized Return
14.9%
10-Year Avg. Annualized Return
11.7%
Why We Picked It
Merck traces its history back to 1668, making it the oldest company on our list. The company’s predecessor firm was founded by the Merck family in Germany, and the modern incarnation of Merck was actually started as an American affiliate of the German enterprise in 1891.
Merck was nationalized during World War I under the Trading with the Enemy Act of 1917—being an offshoot of a German company. However, the firm was bought back at government auction in 1919 for $3.5 million by George Merck, a member of the Merck family, with help from Goldman Sachs and Lehman Brothers.
MRK Chartby TradingView
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Pfizer Inc (PFE)
Market Cap
$247 billion
5-Year Avg. Annualized Return
7.6%
10-Year Avg. Annualized Return
7.8%
Market Cap
$247 billion
5-Year Avg. Annualized Return
7.6%
10-Year Avg. Annualized Return
7.8%
Why We Picked It
Headquartered in New York City, Pfizer is a pharmaceuticals giant that makes medicines, vaccines and some consumer healthcare products. Pfizer has operations in more than 50 countries around the world—in 2020, only about half of its revenue came from the United States.
Pfizer’s top-selling pharmaceuticals are household names, including the antidepressant Zoloft, the erectile-dysfunction drug Viagra and the anti-anxiety drug Xanax. The company has also developed one of the leading Covid-19 vaccines, which it expects will defend against the new omicron variant of the disease.
PFE Chartby TradingView
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Roche Holding AG (RHHBY)
Market Cap
$244 billion
5-Year Avg. Annualized Return
7.2%
10-Year Avg. Annualized Return
5.5%
Market Cap
$244 billion
5-Year Avg. Annualized Return
7.2%
10-Year Avg. Annualized Return
5.5%
Why We Picked It
Roche Holding is a Swiss multinational corporation that operates in two primary areas: pharmaceuticals and medical diagnostics. Among other things, the company produces reagents and drugs, including for treating cancers and depression. Roche is also an old and established company, founded in 1896—more than 30 years before the discovery of penicillin.
RHHBY Chartby TradingView
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Thermo Fisher Scientific Inc. (TMO)
Market Cap
$230 billion
5-Year Avg. Annualized Return
22.2%
10-Year Avg. Annualized Return
23.1%
Market Cap
$230 billion
5-Year Avg. Annualized Return
22.2%
10-Year Avg. Annualized Return
23.1%
Why We Picked It
Waltham, Mass.-based Thermo Fisher Scientific Inc. manufactures scientific equipment, instruments and software used in medical research and development as well as reagents and consumables.
Like many other healthcare companies, Thermo Fisher has jumped into the Covid-19 business. The company already offers a test that it says can detect the new omicron variant, making it presently the only FDA-authorized test capable of detecting the variant.
TMO Chartby TradingView
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Danaher Corp (DHR)
Market Cap
$196 billion
5-Year Avg. Annualized Return
21.9%
10-Year Avg. Annualized Return
17.3%
Market Cap
$196 billion
5-Year Avg. Annualized Return
21.9%
10-Year Avg. Annualized Return
17.3%
Why We Picked It
Danaher is an American conglomerate headquartered in Washington, D.C. The company is relatively young—its predecessor firm was founded in 1969. It gets its name from Danaher Creek in western Montana, where co-founders Steven Rales and Mitchell Rales first conceptualized the company while on a fishing trip.
Like many other companies on our list, Danaher’s operations are vast and diverse. The company operates primarily in environmental sciences, diagnostics and life sciences. The life sciences division represents the core of its healthcare operations, through which it produces a wide array of medical devices and instruments.
DHR Chartby TradingView
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Abbott Laboratories (ABT)
Market Cap
$195 billion
5-Year Avg. Annualized Return
14.2%
10-Year Avg. Annualized Return
13.9%
Market Cap
$195 billion
5-Year Avg. Annualized Return
14.2%
10-Year Avg. Annualized Return
13.9%
Why We Picked It
Abbott Labs was founded in 1888 and is headquartered outside of Chicago, Ill. The company is a large developer of pharmaceuticals and medical devices, including tests. Abbott is perhaps best known for some of its more innocuous consumables, such as PediaSure, Pedialyte and Similac. But, like other healthcare companies responding to the pandemic, it also has a Covid-19 test.
ABT Chartby TradingView
*All data is sourced from Morningstar, current as of February 1, 2023.
Types of Healthcare Stocks
Each stock market sector comprises many industries, each with their own nuances, and healthcare is no different. Four of the most important of subtypes of stocks in the case of the healthcare sector include:
- Drug stocks. These are companies that develop and manufacture pharmaceuticals used in the treatment and prevention of diseases or infections.
- Medical devices stocks. These include companies that design and manufacture medical tests, instruments and equipment, many of which are used in medical research and development processes, including by pharmaceutical companies.
- Health insurance stocks. This healthcare industry consists of companies that offer health insurance plans to meet the cost of healthcare for employers and individual consumers. It also includes pharmacy benefits managers (PBMs).
- Medical services provider stocks. This subgroup includes hospital operators, home health companies, managed care facility operators and other companies that provide healthcare services.
Advantages of Investing in Healthcare Stocks
As defensive stocks, healthcare companies provide steady returns in any market. Because people will always need healthcare, the healthcare sector provides very steady, consistent returns that are uncorrelated with the overall direction of the stock market.
The U.S. healthcare sector is growing faster than the rest of the economy. Growth in the sector is being propelled by technological advances, an aging population and improving treatments for chronic diseases and conditions.
Healthcare spending in the U.S. is seeing strong, sustained growth. National health spending is projected to grow at an average annual rate of 5.4% through 2028, reaching $6.2 trillion and 19.7% of the country’s GDP.
Risks of Investing in Healthcare Stocks
The rising costs of U.S. healthcare appear unsustainable. This phenomenon is nothing new, but there are increasing calls for government action and regulatory changes to do something about the ever-climbing cost of care and health insurance. Payers and patients are demanding better care at lower prices.
Disruption by new players is a constant threat for established healthcare stocks. More and more tech companies are getting involved in the healthcare sector. Firms like Amazon may significantly disrupt old ways of doing business. Nimble biotechs may outperform stodgy huge pharmaceutical firms.
Sustaining growth can be challenging for some types of healthcare stocks. Companies that make drugs and medical devices must convince health insurers and government agencies to continue buying their products. If these players fail to grant reimbursem*nt approvals, their growth prospects can dim.
How to Buy Healthcare Stocks
If you have a regular brokerage account, you can easily add healthcare stocks to your taxable investment portfolio. If you don’t already, check out our listing of the best online brokerage accounts to get started.
Retirement investors can buy healthcare stocks in tax-advantaged retirement plans, like individual retirement accounts (IRAs). But if you have a 401(k), you’ll likely instead have to look into mutual funds that focus on the healthcare industry, rather than individual stocks.
Read More: How To Buy Stocks
When you’re considering a new investment, in healthcare stocks or any other market sector, doing your due diligence is always the first step. While the large-cap stocks listed above can be very safe bets, more volatile small-cap biotech stocks can be incredibly risky investments.
But really, buying any individual stock is a risky game. Instead, consider purchasing exchange-traded funds (ETFs) or index funds that track diversified indexes focused on the healthcare sector. These are less swayed by the individual ups and downs of any one company but provide solid, steady long-term growth. That’s why financial advisors recommend them for most people.
The author(s) held no positions in the securities discussed in the post at the original time of publication.
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Contributor
Dock David Treece is a former licensed investment advisor and member of the FINRA Small Firm Advisory Board. His focus is on breaking down complex financial topics so readers can make informed decisions. He has been featured by CNBC, Fox Business, Bloomberg, and MarketWatch.
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