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2 Top Healthcare Stocks to Buy in June

The stock market is cyclical, and so are many industries. However, some sectors are more resilient to changing economic tides than others, and healthcare is one of them.

Healthcare companies often provide life-saving drugs and devices, as well as other essential products and services, to consumers who need them, regardless of the economy or stock market performance. For long-term investors, putting money into great healthcare companies can be a smart strategy as you build your portfolio over the years.

Here are two top healthcare stocks you may want to add to your buy basket before the end of June.

1. Intuitive surgery

Intuitive surgery (NASDAQ: ISRG) is not a household name, but the company is a healthcare stock you should know about if you are considering investing in this space. The stock is up more than 30% year over year. The company manufactures and sells robotic operating rooms that are used in a variety of minimally invasive procedures around the world.

In 2023, over 2.2 million procedures were performed using Intuitive Surgical’s flagship da Vinci surgical system. Since the first system was approved over two decades ago, Intuitive Surgical’s da Vinci has been used in approximately 15 million procedures worldwide.

You might think that Intuitive Surgical makes the majority of its money from system sales, but in reality this is a relatively small portion of revenue compared to its main revenue generator, the instruments and accessories that go with those systems. Each instrument and accessory has a limited lifespan and therefore must be replaced periodically by Intuitive Surgical’s customers.

Intuitive Surgical offers its customers a range of services, from software to training to multi-year maintenance contracts. In the first quarter of 2024, Intuitive Surgical’s revenue increased 11% year over year to $1.89 billion. This figure includes $1.2 billion in revenue from instruments and accessories, $418 million in revenue from system sales, and $314 million from services.

Net income for the three-month period increased 54% year-over-year to $545 million. The company’s installed base of da Vinci surgical systems increased 14% year-over-year and procedure volume increased 16% year-over-year.

In the last 12-month period, Intuitive Surgical generated operating cash flow of $1.8 billion and leveraged free cash flow of about $529 million. The company also has no long-term debt. For the long-term healthcare investor, this stock seems like a no-brainer.

2. Eli Lilly

Eli Lilly (NYSE: LLY) is a leading pharmaceutical company and pays dividends regularly. The company has a wonderful habit of consistently increasing its dividend and has been paying dividends in some form since the 19th century. In fact, the first dividend payment was made in 1885. That’s a dividend history that few can match.

In the last five years alone, Eli Lilly has increased its payout by over 100%. The company’s current quarterly dividend, which was increased in December, is $1.30 per share, a 15% increase from the previous dividend payout. The current dividend yield is less than 1%, which is not unusual for stocks that perform extremely well. The stock has delivered a total return of about 760% over the last five years, a generous growth rate given the maturity of this company.

Eli Lilly has a vast portfolio of blockbuster drugs, including diabetes drugs Trulicity, Mounjaro, Humalog and Jardiance, as well as cancer drug Verzenio and psoriasis drug Taltz. Mounjaro is one of the drugs that made headlines last year for its off-label use as a weight-loss drug. Late last year, Eli Lilly received approval for Zepbound, which is chemically identical to Mounjaro (they both contain the same active ingredient, tirzepatide), but is specifically approved for weight management.

Zepbound generated $517 million in its first full quarter of commercialization, Q1 2024, while Mounjaro generated $1.8 billion in revenue. Trulicity and Verzenio were the other two heavyweights, generating revenue of $1.5 billion and $1.1 billion, respectively, in the three-month period. Total revenue was $8.8 billion, up 26% from the same quarter last year. Net income rose 67% year-over-year to $2.2 billion.

Eli Lilly is waiting to see if its highly touted Alzheimer’s drug donanemab, which is designed to slow the progression of the disease, gets the green light from the U.S. Food and Drug Administration. In mid-June, the Peripheral and Central Nervous System Drugs Advisory Panel unanimously confirmed the drug’s effectiveness and recommended its approval to the FDA, so it could only be a matter of time.

The market opportunity here is significant and there is room for several successful players. Regardless of the success or failure of Donanemab, there are many positive signals for this business. Investors seeking income and steady portfolio growth should consider this proven stock.

Should you invest $1,000 in Intuitive Surgical now?

Before you buy Intuitive Surgical stock, consider the following:

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Rachel Warren does not own any stocks mentioned. The Motley Fool owns and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.

“2 Top Healthcare Stocks to Buy in June” was originally published by The Motley Fool

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