The healthcare sector performed well in 2018, driven by positive growth in sub-segments such as medical devices, health insurance, hospitals, nursing homes, and pharmaceuticals, which offset losses in biomedical and genetics, home healthcare, medical, and dental supplies. The S&P 500 Health Care Sector gained 4.3 percent year-to-date (YTD) through Dec. 19, outpacing the broader S&P 500’s 4 percent decline.
Moving ahead into 2019, as the decade-long expansion faces a period of heightened volatility and risk, the health care sector should benefit from a shift towards more defensive sectors. In a recent sector roundup from Charles Schwab, the firm rated health care at "outperform," citing the group’s strong balance sheets, attractive dividend yields, and improved cost structure. Demand should continue to rise for health care products and services, driven by a myriad of factors including an aging U.S. population, increased prevalence of lifestyle-related diseases, the launch of new drugs, and expanding insurance coverage. Meanwhile, the use of artificial intelligence (AI)-based applications, and other next-gen technologies, coupled with an accelerated pace of innovation and M&A activity, will fuel the sector heading into 2019.
On the downside, political rhetoric surrounding the Affordable Care Act is expected to contribute to more volatility for health care companies. Overall, large-scale changes remain unlikely in the near term given the divide in Congressional control and the general turmoil in Washington. Volatility should provide investors with opportunities for value — that is, if they're willing to strap in for a roller coaster ride in 2019.
Here are the five health care companies that have managed to outperform the rest, based on their stocks’ performance against the S&P 500 in 2018. The five companies range in market capitalization from $34.1 billion to $51.1 billion. The best performing stock on the list saw its shares rise 76.5%, while the fifth-ranking generated a return of 44.7%.
1. ABIOMED, Inc. (ABMD)
- Market Cap: $14.9 billion
- 2018 Stock Performance: +76.5%
2. Illumina, Inc. (ILMN)
- Market Cap: $49.5 billion
- 2018 Stock Performance: +54.2%
3. HCA Healthcare, Inc. (HCA)
- Market Cap: $46.4 billion
- 2018 Stock Performance: +53.6%
4. Boston Scientific Corp. (BSX)
- Market Cap: $51.3 billion
- 2018 Stock Performance: +49.7%
5. Edwards Lifesciences Corp. (EW)
- Market Cap: $34.1 billion
- 2018 Stock Performance: +44.7%
ABIOMED Inc. (ABMD) is a manufacturer of medical implant devices, including the AbioCar artificial heart and Impella. Abiomed shares generated a whopping 76.5% return for shareholders in 2018, benefiting from its dominance in the cardiovascular disease market, where it sells products used in two major cardiac procedures — cardiogenic shock and protected percutaneous coronary intervention. Over the last decade, Abiomed shares have skyrocketed about 1,900%.
Abiomed's outperformance has been fueled by profit growth in the triple digits, thanks to burgeoning demand for Abiomed’s miniaturized heart pumps, which management estimates could benefit 220,000 patients annually. The firm estimates it has only tapped into 10% of its U.S. market opportunity, and an even smaller figure for foreign markets such as Japan and Germany. While shares aren’t cheap, trading at 124.4 times earnings, bulls cite a promising pipeline of products and expected profit growth of 28% annually over five years as justifying its lofty valuation.
San Diego, Calif.-based Illumina Inc. (ILMN) develops, manufactures and markets integrated systems for the analysis of genetic variation of biological function. The 20-year-old company dominates its competitors in the booming DNA testing space, where it maintains 90% of the market. Illumina’s mission is to “crack the code of life” by “mapping” the 3 billion DNA pairs present in humans, offering customers insight into their vulnerability to certain diseases, which increases prevention and diagnosis effectiveness and timeliness. The cost of DNA mapping should lower from roughly $1,000 today, to only $100 in two years, according to Illumina.
Since hitting the public market in August 2000, Illumina shares have skyrocketed from their IPO price of $16 to just below $320 on Dec. 19. Sales growth should continue to accelerate on demand for DNA mapping, now the fastest-growing medical test ever in the U.S. and recently eligible for reimbursement via Medicare and Medicaid.
HCA Healthcare Inc.
HCA Healthcare Inc. (HCA), formerly HCA Holdings Inc., is a holding company which was incorporated in 2010. Through its subsidiaries, HCA Healthcare owns and operates hospitals and related healthcare entities.
HCA shares have gained 53.6% YTD, thanks to a variety of top line growth drivers including higher admissions and improved payor and service mix. Other positive tailwinds for the company include an expanding market share thanks to a series of recent acquisitions. Meanwhile, a strong balance sheet, free cash flow, and improved guidance from management have boosted investor confidence. Bears remain wary of high operating expenses and thus the potential for margins to fall, as well as higher growth-related spending, which could weigh on HCA’s debt.
Boston Scientific Corp.
Boston Scientific Corp. (BSX) is a manufacturer of medical devices used in interventional medical specialties, such as stents that hold open damaged blood vessels.
In November the medical device leader announced it would buy Britain’s BTG Plc for 3.3 billion pounds, or $4.2 billion, marking its largest deal since 2005. Shares initially plunged on news of the acquisition, which is set to broaden the firm’s reach into the market for treatment of cancer and other diseases with new products. On the other hand, the deal will add to the firm’s debt load, and likely take the company out of consideration as a takeover target itself. Shares have jumped 49.7% YTD, despite a period of heightened volatility for the stock, and have grown nearly 200% over five years.
Edwards Lifesciences Corp.
Edwards Lifesciences Corp. (EW) is a $34.1 billion manufacturer of tissue heart valves and repair products. Shares of the medical device maker have spiked 44.7% YTD, outperforming industry peers thanks to burgeoning demand for its next-gen tech enabled products, including its AI-powered devices. Analysts at Goldman Sachs recently included the Irvine, Calif.-based healthcare company in their basket of “quality” stocks for 2019, forecasting earnings growth at 10% in 2019 and citing the stock’s average ROE at 23%.
Edwards Lifesciences recently collaborated with San Francisco-based Bay Labs to apply AI to cardiovascular imaging. Through building out and improving its offerings, Edwards Lifesciences can better serve the 92.1 million U.S. adults living with some form of cardiovascular disease or the after-effects of stroke. A report by Visiongain, forecasts the global cardiovascular devices market will see a CAGR of 6.7% between 2017 and 2027 to reach roughly $81.4 billion.