The stock market is cyclical, and many industries are as well. However, some sectors are more resilient to the changing economic tides than others, and healthcare is one of them.
Healthcare companies are often providing life-saving drugs and devices, as well as other essential products and services to consumers who need them no matter what the economy or stock market is doing. For long-term investors, putting cash into great companies in the healthcare space can be a wise strategy as you build your portfolio through the years.
Here are two top healthcare stocks you may want to consider adding to your buy basket before June is over.
1. Intuitive Surgical
Intuitive Surgical (NASDAQ: ISRG) isn’t a household name, but the company is a healthcare stock to know if you like to invest in this space. Its stock is trading up by more than 30% from its position one year ago. The business manufactures and sells robotic surgical suites that are used in a wide range of minimally invasive procedures around the world.
In 2023, its flagship da Vinci surgical system was used to carry out over 2.2 million procedures. Since its first system was approved over two decades ago, Intuitive Surgical’s da Vinci has been used in roughly 15 million procedures worldwide.
You’d be forgiven for thinking that Intuitive Surgical makes most of its money from system sales. But those are actually a relatively small portion of its revenue compared to its major moneymaker, which are the instruments and accessories that go with these systems. Each instrument and accessory has a limited lifespan, so these must be replaced by Intuitive Surgical’s clients on a regular basis.
Intuitive Surgical offers a range of services to support its clients, ranging from software to training to multiyear maintenance contracts. In the first quarter of 2024, Intuitive Surgical’s revenue rose 11% year over year to $1.89 billion. That figure included $1.2 billion in instruments and accessories revenue, $418 million in systems sales revenue, and $314 million from services.
Net income for the three-month period rose 54% year over year to $545 million. The company’s installed base of da Vinci surgical systems rose 14% from the year-ago quarter, and procedure volume rose 16% year over year.
Over the trailing-12-month period, Intuitive Surgical has brought in operating cash flow of $1.8 billion, along with with levered free cash flow of about $529 million. It also has zero long-term debt. This stock looks like a no-brainer buy for the long-term healthcare investor.
2. Eli Lilly
Eli Lilly (NYSE: LLY) is a top pharmaceutical company and steady dividend payer. The company has a wonderful habit of steadily increasing its dividend, and has a paid a dividend in some form since the 19th century. In fact, its first dividend payment was in 1885. That’s a dividend history that few can compete with.
Over the last five years alone, Eli Lilly has raised its payout by over 100%. The company’s current quarterly dividend, which was raised in December, is $1.30 per share. That represented a hike of 15% from its former dividend payout. Its current dividend yield is less than 1%, which is not uncommon for stocks that are performing extremely well. The stock has delivered a total return of about 760% in the trailing-five-year period, a generous growth rate given the maturity of this business.
Eli Lilly has an extensive portfolio of blockbuster drugs that includes diabetes drugs Trulicity, Mounjaro, Humalog, and Jardiance, as well as cancer drug Verzenio and plaque psoriasis medicine Taltz. Mounjaro is one of the medicines that made headlines last year for being used off-label as a weight loss treatment. Late last year, Eli Lilly received approval for Zepbound, which is chemically the same as Mounjaro (they both contain the same active ingredient tirzepatide), but is approved specifically for weight management.
Zepbound raked in $517 million in its first full quarter of commercialization, the first quarter of 2024, while Mounjaro brought in $1.8 billion in sales. Trulicity and Verzenio were the other two heavy hitters, bringing in respective sales of $1.5 billion and $1.1 billion in the three-month period. Total revenue came to $8.8 billion, up 26% from the same quarter the prior year. Net income rose 67% year over year to $2.2 billion.
Eli Lilly is waiting to hear whether its much watched Alzheimer’s drug, donanemab, which is designed to slow the disease’s progression, will receive the green light from the U.S. Food and Drug Administration. In mid-June, the Peripheral and Central Nervous System Drugs Advisory Committee entered a unanimous vote backing the drug’s effectiveness and recommending its approval to the FDA, so it could be just be a matter of time.
The market opportunity here is significant, and there is room for multiple successful players. Outside of the success or failure of donanemab, there are a lot of green flags for this business. Investors seeking income and steady portfolio growth might want to consider this tried-and-true stock.
Should you invest $1,000 in Intuitive Surgical right now?
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Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.
2 Top Healthcare Stocks to Buy in June was originally published by The Motley Fool
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