The Dow Jones Industrial Average (DJIA) hit its 35208.51 all-time high last week, driven by a stronger-than-expected jobs report. The U.S. economy added 943,000 jobs in July. Because the jobs report soothed investors’ concerns about the economic recovery, shares of companies tied to the economic comeback have since risen significantly.
Meanwhile, the rapid spread of the highly infectious COVID-19 Delta variant has rekindled investors’ interest in the healthcare industry. This, along with the rising demand for therapeutics, rapid adoption of virtual health and digital innovations, and the aging population, should continue to drive the industry’s growth. In addition, increasing government support to improve healthcare infrastructure is further anticipated to propel the industry's growth. Investors’ interest in healthcare stocks is evident in the Vanguard Health Care ETF’s (VHT) 7.7% returns over the past three months.
Because the healthcare industry tends to be non-cyclical, we believe quality healthcare stocks on the Dow Jones Index—Johnson & Johnson (JNJ), UnitedHealth Group Incorporated (UNH), Merck & Co. Inc. (MRK), and Amgen Inc. (AMGN)—could be best bets now.
Click here to checkout our Healthcare Sector Report for 2021
Johnson & Johnson (JNJ)
JNJ is principally engaged in the research, development, production, and sale of various healthcare products targeted at improving the health and well-being of consumers. Consumer; Pharmaceutical; and Medical Devices are the New Brunswick, N.J. company’s three business segments. In addition, the company has received much attention in recent months due to its Janssen COVID-19 vaccine, which has become a prominent player in the COVID-19 vaccination market.
Last month, JNJ's Janssen Pharmaceutical Company announced that the U.S. Food and Drug Administration (FDA) had authorized UPTRAVI injection for intravenous use in adult patients with WHO functional class (FC) II–III who are temporarily unable to take oral medication for the treatment of pulmonary arterial hypertension (PAH, WHO Group I).
Also, last month, JNJ released data showing that its single-shot COVID-19 vaccine has robust and long-lasting effectiveness against the quickly spreading Delta form of SARS-CoV-2 and other SARS-CoV-2 virus variants. Furthermore, the findings revealed that peoples’ immune response was durable for at least eight months, which is the longest time studied this far.
During the second quarter ended July 21, 2021, JNJ’s worldwide sales increased 27.1% year-over-year to $23.31 billion. Its net income increased 73.1% year-over-year to $6.28 billion, while its EPS grew 72.8% from the prior-year quarter to $2.35. Furthermore, ,the company’s gross profit increased 33.8% year-over-year to $15.73 billion over this period.
A $9.52 consensus EPS estimate for the current year represents an 18.6% improvement year-over-year. Also, JNJ has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $91.3 billion consensus revenue estimate for the current year represents a 10.5% increase from the same period last year. The stock has gained 16.9% over the past year and 18.9% over the past nine months.
JNJ's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
JNJ has also been rated an A grade for Stability and Growth, and a B for Value. Within the Medical-Pharmaceuticals industry, it is ranked #1 of 217 stocks.
To see additional POWR Ratings for Momentum, Quality, and Sentiment for JNJ, click here.
UnitedHealth Group Incorporated (UNH)
UNH in Minnetonka, Minn., is a diversified health care company. UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx are the company’s four operational segments.
Last month, UNH introduced predictive analytics to help enhance well-being, decrease costs, and increase engagement in clinical intervention programs for people in some employer-sponsored benefit plans. The initiative should enable the company to help improve people’s health and well-being by providing greater access to affordable healthcare services.
UNH’s revenue increased 14.8% year-over-year to $71.32 billion in the second quarter, ended June 30, 2021. Its operating income came in at $5.98 billion. The company reported $4.27 billion in net income, while its EPS came in at $4.46 over this period.
The company’s EPS is expected to grow 10% year-over-year to $18.57 in its fiscal year 2021. Analysts expect UNH’s revenue to increase 9.4% year-over-year to $281.28 billion in the current year. The stock has gained 29.6% over the past year and 17.2% year-to-date.
UNH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. UNH also has an A grade for Stability, and a B for Sentiment and Quality. In addition, the stock is ranked #1 of 11 stocks in the B-rated Medical – Health Insurance industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the UNH ratings for Growth, Value, and Momentum.
Merck & Co. Inc. (MRK)
MRK is a global healthcare corporation. Pharmaceutical; and Animal Healthcare are the two business segments of the Kenilworth, N.J. company. In addition, it also has collaboration agreements with Gilead Sciences, Inc. to co-develop and co-commercialize HIV treatment, with Amathus Therapeutics to develop neurodegenerative disease treatments, and with Linnaeus Therapeutics, Inc. to evaluate LNS8801 in combination with KEYTRUDA for patients with advanced cancer.
This month, MRK reported that the Phase 3 KEYNOTE-716 study of KEYTRUDA, its anti-PD-1 medication, achieved the primary objective of recurrence-free survival (RFS) for the adjuvant treatment of patients with surgically resected high-risk stage II melanoma. The company aims to build a strong industry presence by continued investment in its R&D.
During the second quarter, ended June 30, 2021, MRK’s sales increased 21.9% year-over-year to $11.40 billion. The company’s net income came in at $1.55 billion, while its EPS amounted to $0.61 over this period.
A $6.15 consensus EPS estimate for the current year represents a 3.5% increase year-over-year. The $48.59 billion consensus revenue estimate for 2021 represents a 1.2% increase from the same period last year.
MRK's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to a Buy in our proprietary rating system. MRK has also rated a B grade for Quality, Stability, and Value. Within the Medical – Pharmaceuticals industry, it is ranked #15 of 217 stocks.
Click here to see additional POWR Ratings for Growth, Sentiment, and Momentum for MRK.
Amgen Inc. (AMGN)
AMGN researches, develops, produces, and distributes human medicines worldwide. It is involved primarily in inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neurology. In addition, the company has collaboration agreements with Novartis Pharma AG, UCB, Bayer HealthCare LLC, BeiGene, Ltd., Eli Lilly and Company, and Datos Health. Amgen is based in Thousand Oaks, Calif.
Last month, AMGN announced a deal to acquire Teneobio, a privately owned clinical-stage biotechnology firm. The company will purchase all outstanding shares for $900 million and make future contingent milestone payments to Teneobio stockholders for up to an additional $1.6 billion in cash. Through this acquisition, the company aims to use Teneobio’s bispecific and multispecific antibodies technology to accelerate its R&D to treat a wide range of critical diseases.
For the second quarter, ended June 30, 2021, AMGN’s revenue increased 5.2% year-over-year to $6.53 billion. Its operating income came in at $828 million. The company's non-GAAP net income increased 1.5% year-over-year to $2.52 billion. In addition, its EPS amounted to $0.81 over this period.
Analysts expect AMGN's revenue to increase 2.4% year-over-year to $26.04 billion in its fiscal year 2021. The company's EPS is expected to grow 9.3% year-over-year to $17.86 next year.
It is no surprise that AMGN has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality, and a B for Value and Stability. In the Biotech industry, it is ranked #14 of 505 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the AMGN ratings for Growth, Sentiment, and Momentum here.
Click here to checkout our Healthcare Sector Report for 2021
JNJ shares were trading at $173.24 per share on Tuesday morning, down $0.47 (-0.27%). Year-to-date, JNJ has gained 11.45%, versus a 19.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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