Are these the best healthcare stocks to watch?

Healthcare stocks: what you need to know

Healthcare stocks are the companies involved in providing medical services. The healthcare sector makes up one of the largest portions of the global economy, with a range of different categories of businesses, including:

• Pharmaceutical companies: these are the companies involved in producing over-the-counter and prescription drugs. Often called ‘big pharma’, these companies spend large portions of their income on research and development
• Healthcare services: these companies include the hospitals and clinics, which are the backbone of any healthcare system. Although many countries choose to run a public healthcare system, private healthcare companies are available for investment. Insurance companies are also included in this sector
• Medical device stocks: these are the companies involved in the creation and distribution of everything from artificial joints to blood pressure monitors. The products of these companies are usually always in demand
• Biotechnology: the companies in this section of healthcare are involved in research and development of medicines and technologies derived from living organisms. They are involved in providing treatment for chronic and terminal ailments

What moves the prices of healthcare stocks?

The prices of healthcare stocks, like most assets, are moved by the forces of supply and demand. There are a broad range of factors that cause share prices to change, including news and economic data.

Most recently, the Covid-19 crisis was one of the largest driving forces behind healthcare stock prices. Some companies have benefitted from the increased demand for healthcare products and services, but others have suffered from declining patient treatment amid lockdown measures.

Broadly speaking, the other factors that affect healthcare stocks are:

• Demographics: as people live longer, and the population grows, there is an increased reliance on medical services. The increased demand for drugs and other products can have a positive impact on share prices
• Fiscal policy: the relationship between government spending and private companies is an important factor when assessing healthcare stocks. Policies that impact the taxation of companies, and the amount companies can charge for their drugs, can greatly impact profit margins
• Research and development: for manufacturers, the introduction of new products has the largest impact on their share price. Prior to a drug being released, the outcome of clinical trials and any related news will affect the company’s share price. The most dramatic example of this recently has been the development of the Covid-19 vaccines
• Regulation: any regulation that could restrict the output of manufacturing companies or cause issues in the service delivery could play out negatively across the company share prices

How to trade or invest in healthcare stocks

There are two ways that you can get exposure to healthcare stocks: investing and trading.

When you invest in healthcare stocks, you’ll be buying shares in a company or a healthcare exchange traded fund (ETF) outright. This is done in the hope that they increase in price, and you can sell them at a later date for a profit. Along with the physical shares in the company, you would receive shareholder rights and any dividends that are paid.

Learn more about investing with a share dealing account

If you decide to trade healthcare stocks instead, you could speculate on shares and ETFs, whether they are increasing or decreasing in value. This means that you can focus on shorter-term market movements that might occur when news and regulatory announcements hit the market. You can trade on healthcare stocks via derivative products, such as spread bets and CFDs.

Both products are leveraged, so you’d need to put down a small initial deposit to gain full market exposure. While leverage can potentially make your money go a lot further, it can also magnify your losses, so a good risk management strategy is important.

Learn how to manage your risk

Top 10 healthcare stocks to watch

1. Johnson & Johnson (JNJ)
2. UnitedHealth Group Inc (UNH)
3. Pfizer Inc (PFE)
4. Eli Lilly and Company (LLY)
5. Abbott Laboratories (ABT)
6. Novartis (NOVN)
7. AbbVie Inc (ABBV)
8. Novo Nordisk (NVO)
9. Merck & Co Inc (MRK)
10. AstraZeneca (AZN)

The healthcare sector is huge, with a large number of stocks to choose from, and plenty of opportunities for going long and short. The following is a list of some of the largest healthcare stocks in the world by market capitalisation. Past performance is not a guide to future performance. Always do your own research.

Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ) is the one of the world’s largest healthcare companies. It’s a multinational pharmaceutical and medical devices manufacturer based in the US, which consists of 250 companies – collectively called the ‘Johnson & Johnson family of companies’.

It was also one of a handful of companies producing Covid-19 vaccines around the world. The firm reported first quarter 2024 sales growth of 2.3% to $21.4 billion.

Open an account to start trading or investing in Johnson & Johnson

UnitedHealth Group Inc (UNH)

UnitedHealth Group (UNH) is a health and wellbeing company that provides products and insurance services to more than 50 million patients in the US, and over 5 million worldwide.

The company has not had to recover from as many Covid-19 disruptions as some of its peers, as it was able to continue a large part of its operations in 2020 by switching in person client care to virtual consultations.

In its first quarter 2024 results, UnitedHealth saw revenues rise by nearly $8 billion to $99.8 billion year-over-year. However, it made a $1.53 loss per share due to a cyber attack at its division Change Healthcare and negative currency fluctuations relating to the sale of a division in Brazil.

Ready to trade or invest in UNH? Open an account to get started

Pfizer Inc (PFE)

Pfizer Inc (PFE) is a US-based biopharmaceutical company that discovers, develops and delivers medicines, vaccinations and other healthcare products.

Pfizer was one of the largest Covid-19 vaccine producers and was the first company to announce its coronavirus vaccine was 90% successful on 9 November 2020. Its stock climbed 11%, while markets around the world rocketed – the FTSE 100 jumped by 5%, while the Dow Jones jumped 5.6% on opening.

First quarter revenues fell by 20% to $14.9 billion (from $18.5 billion in 2023) due to a decline in sales from Covid vaccine Comirnaty and Covid-19 anti-viral treatment Paxlovid. Adjusted net income fell by 34% to $4.7 billion (from $7 billion in 2023).

Learn more about how to buy and sell Pfizer shares

Open an account to start trading or investing in Pfizer

Eli Lilly and Company (LLY)

Eli Lilly and Company (LLY) is a US pharmaceutical company, with operations in more than 18 countries and sales in over 125 countries. The company has grown revenue strongly over the last few years, largely due to the Covid-19 pandemic, which saw increased demand for the company’s treatments.

In its first quarter results for 2024, revenues increased 26%, driven by weight-loss drug Mounjaro, breast cancer pill Verzenio and diabetes medications Jardiance and Zepbound. The company also saw positive results from two Phase 3 trials of tirzepatide for obstructive sleep apnea, the submission of mirikizumab for Crohn's disease in the U.S. and EU and the resubmission of lebrikizumab for atopic dermatitis. Eli Lilly has raised its 2024 full-year revenue guidance by $2.0 billion, with reported EPS guidance increased by $1.25 to be in the range of $13.05 to $13.55.

Ready to trade or invest in Eli Lilly? Open an account to get started

Abbott Laboratories (ABT)

Abbott Laboratories (ABT) is an American healthcare company, which is focused on research-based drugs, medical devices and pharmaceuticals. It is considered a world leader in all of its core businesses, but is most famous for developing the first HIV blood screening test in 1985. Abbott Labs later spun off its pharmaceutical arm AbbVie, which is also one of the largest global healthcare stocks. The company has paid its shareholders dividends every year since 1924.

In its first quarter results, the healthcare company grew sales by 2% to $10.0 billion thanks to what it called a "strong underlying base business performance" - this included the anticipated fall in Covid-19 related testing sales against the previous year. As such, the company is raising its full-year sales and EPS guidance.

Ready to trade or invest in ABT? Open an account to get started

Novartis AG (NOVN)

Novartis AG (NOVN) was founded in Switzerland in 1996, as a healthcare company focused on drug development. Novartis was initially listed on the SIX Swiss Exchange at $23.26.

Covid-19 created a significant number of challenges that impacted Novartis in 2020. However, the company’s CEO Vas Narasimhan said that they’re confident the healthcare industry has learned from mistakes made in the first wave, including the postponement of treatment, which hurt sales of Novartis drugs in the same year.

Novartis saw first quarter net sales grow 11% to $11.8 billion during the period, with net income up 37% to $2.7 billion. Products behind the strong sales include heart drug Entresto, psoriasis drug Cosentyx, MS treatment Kesimpta and breast cancer drug Kisqali.

Ready to trade or invest in Novartis? Open an account to get started

AbbVie Inc (ABBV)

AbbVie Inc (ABBV) was created after Abbott Laboratories split into two publicly traded companies. It launched with a handful of Abbott Labs’ best-selling drugs and quickly gained market share. It now has a market capitalisation of $282.6 billion.

First quarter net revenues rose by 0.7% to $12.3 billion on a reported basis, but were hit by the unfavourable impact of milestone expenses and the acquisition of IPR&D. Sales of AbbVie's immunology portfolio fell by 3.9% to $5.4 billion due to genetic competition to rheumatoid arthritis drug Humira. However, oncology sales rose by 9% to $1.5 billion, while neuroscience sales increased by 15.9% to $2 billion.

Open an account to start trading or investing in AbbVie

Novo Nordisk (NVO)

Novo Nordisk (NVO) is a Danish multinational pharmaceutical company that manufactures products, including diabetes care medication and hormone replacement therapies. It is one of the world’s largest suppliers of insulin.

Novo still generates around 85% of its revenue from diabetes care, but over recent years, the focus has shifted from insulin to a new diabetes drug called GLP-1. The rise in its semiglutide drug platform, Ozempic, has pushed revenue and profitability higher - and saw the company enjoy the strongest capital gains in Europe in 2023.

Novo saw first quarter operating profit increase by 27% to DKK 31.8 billion, while net revenues rose by 22% to DKK 65.3 billion. Sales within its diabetes and obesity care business increased by 25% to DKK 61.0 billion, with North American sales up 34%.

Ready to trade or invest in Novo Nordisk? Open an account to get started

Merck & Co Inc (MRK)

Merck & Co Inc (MRK) is a US-based pharmaceutical company, established in 1891 as a subsidiary of the Germany company Merck.

Merck is another company that has been involved in the development of coronavirus vaccines. In March 2021, the company announced it would support manufacturing and supply of the Johnson & Johnson’s Covid-19 vaccine, though demand has now fallen for this treatment as the pandemic has receded.

First quarter sales showed a strong contribution from Merck's oncology and vaccine divisions, with total worldwide sales up 9% to $15.8 billion - up 12% at constant currency rates. Sales of head and neck cancer drug Keytruda grew by 20% to $6.9 billion compared to the same period in 2023.

Open an account to start trading or investing in Merck

AstraZeneca (AZN)

AstraZeneca is an LSE-listed pharmaceutical company, specialising in oncology and respiratory-related treatments. More recently, it is famous for being the biggest producer of Covid-19 vaccines in the world.

After its formulation of the Oxford/AstraZeneca Covid-19 vaccine in early 2020, stocks predictably rose, although in common with many businesses on this list, this was only a small part of the overall strategy.

First quarter revenues rose 19% to $12.7 billion, thanks to an 18% increase in product sales and growth in revenue from the company's partnered medicines. The oncology division saw sales grow 26%, while the cardiovascular, renal and metabolic division grew sales by 23% and the rare disease business by 16%. Earnings per share rose by 13% to $2.06.

Chief executive Pascal Soriot said: “AstraZeneca had a very strong start in 2024 with substantial total revenue growth of 19% in the first quarter. Our strong pipeline momentum continued and already this year we announced positive trial results for Imfinzi and Tagrisso that were unprecedented in lung cancer, the data from both of these studies will be presented during the ASCO [American Society of Clinical Oncology] plenary in June. We are also looking forward to seeing the results of several other important trials throughout the year."

Find out more about how to buy and sell AstraZeneca shares

What to bear in mind before trading healthcare stocks

The healthcare industry is currently experiencing a lot of volatility. The impacts of Covid-19 have both increased demand for research and development around treatments, as well as lowered the demand for other services.

Healthcare stocks had a mixed bag through the 2020s, with some riding high on the ‘Covid effect’ while other healthcare stocks in general have declined. This could, however, experience a rapid turnaround post-pandemic.

Before you take a position on a healthcare stock, it’s important to do your research and look at how they have performed in recent times. Some of the stocks on our list have outperformed the market, while others have suffered due to the pandemic and general bear market.

Depending on your goals – whether you’re interested in long- or short-term market movements – you’ll need to look at lasting sustainability of the company’s share price. If it’s overvalued, you might consider taking a short position on it, in anticipation of a stock market correction. And if it’s undervalued, you might want to go long to benefit from long-term growth.

Healthcare stocks summed up

• Healthcare stocks are all the companies that are involved in providing medical services
• The healthcare sector makes up one of the largest portions of the global economy
• Healthcare stocks fall into four categories: pharmaceutical, healthcare services, medical devices and biotechnology
• There are range of factors that cause healthcare share prices to change, including demographics, fiscal policy, research and development, and regulation
• Covid-19 has been providing fuel for growth for some healthcare companies, while stagnating the growth of others
• Investing in healthcare stocks enables you to look at longer-term market movements
• Trading healthcare stocks enables you to look at interesting short-term volatility that could play out across the share prices of the companies
• It is important to keep an eye on the latest industry trends and the forecast for healthcare stocks

Open an account to start trading or investing in the healthcare industry. Alternatively, you could create a demo account to practise trading in a risk-free environment.

Trade and invest in over 17,000 UK, US and global shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading or investing in shares with us, or open an account to get started today.

*Based on revenue excluding FX (published financial statements, October 2021).