8 Health Care Stocks That Are Likely To Prosper

Part defense, part offense and all bargain, health care stocks should thrive.

- Nellie S. Huang

Health care stocks cover a lot of bases. They’re defensive because people always need medicine and medical care. They’re fast-growing because innovative treatments are powering profits at several drug companies. And now, they’re cheap, too. Scrutiny of the health care system is high, thanks in part to the upcoming 2020 presidential election, and that has weighed on the sector’s stocks. From talk of Medicare for All to legal challenges to the Affordable Care Act to proposed drug-price regulations, “there’s a lot of political noise,” says Baron Health fund manager Neal Kaufman. As a result, shares in many good companies that were once expensive are now a bargain. “This is a great opportunity to buy stocks that are being punished unnecessarily,” Kaufman says.

Few industry watchers believe Medicare will be nationalized. What will happen with the ACA or drug pricing is harder to predict. Even so, some pockets of the health care sector face greater uncertainty as the debate continues. Hospitals and businesses focused solely on insurance, for instance, would be at risk in a singlepayer system.

But an aging population and the breakneck pace of drug innovation bode well for other parts of the sector over the long term. The Food and Drug Administration approved more new drugs in 2018 than in any year before. Just as the internet disrupted multiple industries, including tech and retail, “health care is on the verge of initiating significant change,” says Gary Robinson, manager of Baillie Gifford American fund, a U.S. stock fund for U.K. investors.