5 Best Healthcare Stocks to Buy in January 2022

The healthcare sector has been in the focus amid rising cases of the omicron variant. The US hit a grim milestone this week after the daily cases topped 1 million, which was a new record.

When we talk of the healthcare sector, it is quite diversified and heterogeneous. Established pharmaceutical companies, clinical-stage biotech companies, healthcare equipment companies, hospital companies, diagnostics companies, medical insurance companies, and health tech companies are part of the ecosystem. The sector is generally defensive in nature and looking at the current macro environment of rising rates and slowing growth, many investors are pivoting towards defensive stocks. Here are the five best healthcare stocks that you can buy in January 2022.

1. Pfizer (NYSE: PFE)

Pfizer was among the best-performing healthcare stocks in 2021. As the omicron variant continues to play havoc, booster doses of COVID-19 vaccines are a hard reality. This is what makes Pfizer, whose COVID-19 vaccine is the only shot with a full FDA approval, an interesting bet. Wall Street analysts have also been taking a bullish view of the stock and see it as a good healthcare stock to buy,

BofA finds PFE a good healthcare stock to buy

Earlier this week, BofA upgraded Pfizer stock from a neutral to buy, citing optimism over the recurring cash flows from the company’s COVID-19 vaccine shot. It said “since 2020, investors have focused squarely on Pfizer’s success in battling C-19, namely through vaccines and now oral agents. However, in 2022 we expect the Pfizer narrative to shift to the benefits of its C-19 success in the form of stepped up pipeline/portfolio investments, especially given [more than] $100B in cash generated to 2025.”

Notably, the brokerage wasn’t bullish on the stock as early as December but has now raised its target price to $70. It is also bullish on Pfizer’s product pipeline and said “We expect a number of internal pipeline readouts to add confidence in the portfolio; some of these readouts include RSV, flu, and Lyme disease vaccines.”

PFE is among the best healthcare stocks to play the COVID-19 vaccination story as well as a strong product pipeline of the company.

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2. Merck (NYSE: MRK)

Merck is among those healthcare stocks that have eroded shareholder value over the last year. The stock hasn’t performed well over the long term also and is up only about 35% in the last five years which is way below its peers as well as the broader markets. One saving grace has been the high dividend yield which currently stands at 3.5%.

Merck failures

Some of Merck’s recent products haven’t succeeded. The company wasn’t able to come up with a COVID-19 shot even as other pharma majors developed the vaccine in a quick time. The company’s molnupiravir Covid antiviral pill has also not been the kind of gamechanger as it was previously expected to be.

Meanwhile, Goldman Sachs is of the view that markets are not appreciating the growth prospects for Merck and finds the company’s risk-reward attractive. The stock trades at an NTM (next-12 months) PE multiple of 11.3x which looks quite attractive. If you are looking to buy a beaten-down healthcare stock with a high dividend yield, Merck should certainly be on your radar.

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3. Senseonics (NYSE: SENS)

Stepping away from the pharma companies, SENS is one healthcare company that looks a compelling buy. The company produces the Eversense CGM (continuous glucose monitoring) system which is an implantable device and could revolutionize the diabetic care market. The CGM market is expected to rise at an annual pace of 12.7% between 2020 and 2027 according to Grand View Research. It forecasts the market to reach $10.4 billion by 2027.

SENS is a penny healthcare stock

Meanwhile, the commercialization efforts of Senseonics have somewhat disappointed. One reason has been the current implantable life of 90 days. Earlier this week, the company said that it expects the FDA to approve the new product with a 180-day implantable life in a few weeks.

“We understand that the FDA is at full capacity managing the backlog of COVID-19 related filings creating longer than expected review timelines. We are confident a decision regarding approval of the 180-day system will be made in the coming weeks as the FDA continues to clear out the backlog,” said Tim Goodnow, Ph.D., SENS CEO.

If the approval is granted, it could be a gamechanger for Senseonics. SENS is a penny healthcare stock but looks a good buy considering the value proposition that the Eversense CGM offers for diabetic patients.

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4. Teladoc Health (NYSE: TDOC)

TDOC is a health tech company offering telehealth services. The stock tumbled in 2021 as stay-at-home companies went out of favor with investors. 2022 hasn’t been any better for the company and it hit another 52-week low today. Wall Street analysts have been mixed on the stock but Cathie Wood of ARK Invest has been loading up the shares amid the crash. Wood’s optimism hasn’t paid so far and the stock has continued to make newer lows. Pretty much the same story has been playing around in other Wood stocks as well. However, she continues to have strong conviction in her names and is still backing them for long-term outperformance.

TDOC is a good healthcare stock to play telehealth

If you are looking to play the digitization of the healthcare industry, TDOC is one name that you should be tracking. Wells Fargo estimates the company’s total addressable market at $120 billion and forecasts an organic annualized revenue growth in excess of 20% for the next five years. International growth would also drive the company’s performance in the long term.

Amid the recent crash, TDOC’s risk-reward looks quite attractive and it looks among the best healthcare stocks to buy in 2022.

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5. Royalty Pharma (NYSE: RPRX)

Over the last couple of years, Berkshire Hathaway has dabbled with many healthcare stocks and Royalty Pharma is one of them. Royalty Pharma is a niche healthcare stock. While it is not directly into the healthcare business, it funds and invests in other healthcare companies. It funds late-stage biopharma companies and new product launches in exchange for royalties. It also buys royalties from companies. Berkshire Hathaway took the position in the third quarter of 2021 only and next month we’ll get to know whether the company has added more shares.

Jim Cramer also finds Royalty Pharma a good healthcare stock to buy

RPRX stock is down sharply over the last year but Jim Cramer finds Royalty Pharma a good healthcare stock to buy. Cramer said that the company is doing quite well and should increase its dividend. Currently, it has a dividend yield of 1.8%. Overall, Royalty Pharma could be a good healthcare stock to buy and can help you diversify your portfolio.

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