2 top healthcare stocks I’d buy right now

Double-digit sales and profit growth alongside industry tailwinds have these stellar healthcare stocks at the top of my watch list.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One has to look no further than this morning’s news of an ambitious healthcare tie-up between corporate giants JP Morgan, Amazon and Berkshire Hathaway to understand just how big an issue runaway healthcare spending is becoming for both corporations and governments across the developed world.

But with no signs of spending slowing down in the US, UK or anywhere else, investors looking to benefit from this trend will find plenty of potential opportunities. One that I’ve got my eye on is UDG Healthcare (LSE: UDG), which is a provider of non-core services such as commercial marketing, packaging and communications for global drug makers.

UDG has benefited from these customers moving to outsource these essential but non-core services as a means of improving margins under relentless shareholder pressure. This trend, together with a slew of acquisitions that have turned it into a global leader in its markets, has sent the group’s share price up 25% over the past year alone.

Judging by the company’s Q1 trading update released this morning, investors have been right to be bullish as management is guiding for a whopping 18%-21% uplift in earnings per share for the full year to October. The group’s commercialisation division, Ashfield, is the main driver of growth and management said its operating profits were significantly ahead of the prior year’s due to acquisitions and organic growth as drug makers continue to bring huge volumes of new treatments to market.

While there were short-term issues with the packaging division, management expects these to reverse in H2 which, alongside falling US tax rates and growth in other divisions, should still leave investors very happy for the full year. With industry tailwinds at its back, a healthy balance sheet providing ammunition for further acquisitions, and massive growth opportunities, I think UDG Healthcare is still attractively valued even at 25 times forward earnings.

Underpinning critical research the world over  

Another healthcare stock on my radar is research tool provider Abcam (LSE: ABC). It provides academic pharma and biotech laboratories with research-grade antibodies that they need to conduct experiments.

This proposition has proven very attractive to scientists in recent years and as a result, Abcam has been growing very rapidly. In H1 alone revenue was 10% ahead of the year prior as each of its product categories grew sales faster than overall market growth.

Future growth opportunities also exist in broadening the group’s geographic reach, particularly in the massive Chinese market. Last year China accounted for only 13% of group revenue, but the country is becoming increasingly important with sales in the region up 24% year-on-year in H1.

There’s also the possibility of organic growth continuing to be buttressed by selective acquisitions that are well within the group’s capabilities. At year-end it had a pile of cash totalling £84.8m. And closing cash balances were well ahead of the year prior due to the highly profitable nature of the company’s business, with EBITDA margins of 32.5% recorded last year.

Abcam’s shares aren’t cheap at 39 times forward earnings, but with significant cash generation, impressive margins and continued double-digit sales growth, I think the business is still one I’d love to own for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s what these results tell me about the Lloyds share price

A policy of progressive shareholder returns, including big dividend yields, makes the Lloyds share price look super cheap to me.

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

Passive income from 9.2% yield stock could cut pressure as costs spike

Passive income is one way to reduce the pressure on families, especially as a new study finds a third of…

Read more »