5 Best Healthcare Stocks to Buy in October 2021

The healthcare sector is considered defensive in nature. As investors get wary of broader market valuations, here are some of the healthcare stocks that you can consider in October.

Here we should note that the healthcare industry is quite heterogeneous in nature. Established pharmaceutical companies, clinical-stage biotech companies, hospital companies, healthcare equipment companies, diagnostics companies, medical insurance companies, and health tech companies form part of the healthcare ecosystem.

1. Merck (NYSE: MRK)

Drugmaker Merck looks among the best healthcare stocks to buy in October. The company’s COVID-19 pill has shown good results and is touted as a gamechanger in the fight against the deadly virus. The medicine which has been named molnupiravir has been shown to lower hospitalization and death rates by over half in moderate and severe coronavirus cases.

The key advantage of the medicine is that it can be taken orally. With a large number of people still showing vaccine hesitancy, the pill can help in the fight against the coronavirus. Dr. Mike Ryan, executive director of WHO’s Health Emergencies Program said that the agency is waiting for data related to the medication. He, however, added, “If you can stop the virus before it makes someone very sick, then it’s a game changer in that sense.” If the FDA approves the pill, it could be a positive development for the stock.

Merck cancer drug

Meanwhile, on the flip side, the company’s cancer drug Keytruda would end the exclusivity period in about seven years. This would have an impact on its performance as the drug is expected to contribute a third of its revenues this year. However, the company is cognizant of the upcoming cliff and has announced the acquisition of Acceleron Pharma for $11.5 billion.

What makes Merck a good healthcare stock

“We do ultimately see it as a multibillion-dollar opportunity and revenue potential, and, importantly, expect it to grow well into the next decade,” Merck’s new CEO Robert M. Davis commenting on sotatercept, Acceleron’s lead pipeline drug. He added, “It provides a really nice revenue and earnings stream in the end of this decade, in an important period as we see the loss of exclusivity of Keytruda.”

The forecast for Merck stock looks positive and consensus estimates call for an upside of almost 15% from these levels in the healthcare stock. The company pays a generous dividend and the current yield of 3.1% is over twice that of the S&P 500’s dividend yield. With an NTM (next-12 months) PE of only about 13.4x, which is below the 10-year average of 14.6x, Merck looks like an attractively priced healthcare stock to buy in October 2021.

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2. Johnson & Johnson (NYSE: JNJ)

JNJ has been one healthcare stock that has facing constant lawsuits. The stock is up only about 2% for the year and is underperforming the markets by a wide margin. Its dividend yield looks decent at 2.66%. Meanwhile, there are several factors that make JNJ among the best healthcare stocks to buy in October 2021.

The company is the only healthcare company that has a single shot COVID-19 vaccine. Also, last month the company said that its booster shot helps increases the antibody levels by up to six times as compared to the single shot.

Morgan Stanley finds JNJ a good healthcare stock to buy

Earlier this year, Morgan Stanley analyst David Risinger assumed the coverage of JNJ stock with an overweight rating and $187 target price. “We are Overweight JNJ shares based upon strong growth prospects, diversification across three distinct business segments – Pharmaceuticals, Medical Devices & Diagnostics, and Consumer – and an attractive valuation relative to the S&P,” said Risinger.

JNJ has a diversified business model and some of these businesses, especially the Medical Devises vertical, would stand to benefit from pent-up demand. Last year, as elective surgeries took a backseat, the demand for medical devices, other than those linked to COVID-19, fell.

JNJ stock forecast

Wall Street analysts have a mixed forecast for JNJ stock and it has 11 buys, seven holds, and one sell rating. However, its median target price of $188.05 is a premium of almost 18%. Its street high target price of $215 is a 34.7% upside over current prices.

JNJ stock has come off its 2021 highs and now trades at an NTM PE of 16.3x which looks reasonable. If you are looking at a diversified healthcare stock to buy in October, JNJ looks among the best bets.

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3. Clover Health (NYSE: CLOV)

Clover Health, which is a Medicare Advantage plan provider, went public through a reverse merger with one of Chamath Palihapitiya’s SPAC (special purpose acquisition company) and has been very volatile since then. The company joined the ranks of meme stocks after the pumping from Reddit group WallStreetBets took it as high as $28.85. However, it currently trades below the SPAC IPO price of $10.

To be sure, while healthcare stocks tend to be stable and defensive, CLOV is very volatile. Apart from being a growth company, its popularity on social media also adds to the volatility. However, if you are looking at a healthcare stock that could potentially be a multibagger over the next five years, CLOV looks like a good bet.

What makes CLOV a good healthcare stock?

CLOV is growing fast. While it is currently making losses, like many other startup companies, it expects to be EBITDA positive by 2023. The company expects US Medicare Advantage spending to more than double between 2019 to 2025, and reach $590 billion. The expected increase in Medicare Advantage is positive for companies like CLOV.

At the time of the merger, CLOV had forecast revenues of $880 million for 2021 and $1.72 billion for 2023. The company has already lowered the revenue projection for 2021 to $810-$830 million. Notably, the company had lowered several forecasts which made analysts apprehensive of this healthcare stock.

However, the stock has fallen sharply and looks attractive at these prices. Short-term volatility notwithstanding, CLOV is an attractive healthcare stock to buy for the long term.

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4. Senseonics (NYSE: SENS)

Senseonics would be another multibagger healthcare stock to buy in October 2021. The company produces the Eversense CGM (continuous glucose monitoring) system which is an implantable device. Currently, the Eversense CGM has to be implanted every 90 days. The company has applied with the FDA to increase the life to 180 days. If the FDA grants the approval, it will help lift SENS stock. The Eversense CGM can potentially transform the diabetic care market, which has been growing fast amid changing lifestyles.

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. The successful commercialization of Eversense could make SENS stock a multibagger.

SENS is a healthcare stock to bet on diabetic care

In the second quarter of 2021, SENS posted revenues of $3.3 million. For the full year, it has given a guidance of revenues between $12-$15 million. That said, the company is not a play on short-term performance but on long-term fundamentals. If it manages to get the FDA approval, it would help in increasing the adoption of Eversense as it would help lower visits to a healthcare professional.

Overall, while SENS is a risky stock, it is among those healthcare stocks which can be multi-baggers.

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5. LHC Group (NYSE: LHCG)

LHCG stock is down over 30% for the year and is trading at its 52-week low prices. The company provides in-home healthcare services and looks a niche healthcare stock. The company has announced several acquisitions over the last month which would help propel its growth which has been somewhat stagnating.

Wall Street analysts find LCLG a good healthcare stock to buy

Of the 14 analysts covering LHCG stock, 11 have a buy rating while the remaining three rate it as a hold. None of the analysts has a sell rating on this healthcare stock. Its median target price of $240 is a 65% premium over current prices. Its street high target price of $260 is a 79% premium and even the street low target price of $170 implies an upside of 16.8%.

Overall, despite its recent underperformance, Wall Street analysts find LHCG as a good healthcare stock to buy. The company looks like an attractive healthcare stock to buy and play the growing demand for in-health healthcare services considering the aging US population.

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