Finally, the political clouds over health care seem to have parted: Split party control of Congress following the midterms means Obamacare isn’t going anywhere, and proposals to curb drug prices are unlikely to pass both houses. Pharma and biotech stocks, after nearly three years of underperformance, began to make a comeback in the latter half of 2018. That’s likely to continue even if the global economy slows: Diseases, after all, are anything but cyclical. “Health care is a defensive growth sector that we think should have a growth upturn over the next five years or so,” says Saira Malik, head of global equities at Nuveen. She thinks Abbott Laboratories will grow revenue 7% to 9% annually for the next three years, faster than its medical-device company peers, as it globally expands its product offerings, such as mitral heart valve replacement and repair devices as well as wearable glucose sensors for diabetes.
Marc Pinto, a portfolio manager at Janus Henderson, favors Merck, whose blockbuster immunotherapy treatment, Keytruda, has proved effective for a growing number of different cancers, enabling the pharma company to score a string of FDA approvals for new indications—and sell the drug to more patients. That also helps insulate Merck, which pays a 3% dividend yield, from pressures to lower the drug’s price, says Pinto.
Tom Slater, head of the U.S. equities team at Baillie Gifford, sees the greatest potential in companies that not only improve people’s health but also lower medical costs. Despite having a near monopoly on genetic sequencing machines, Illumina has been rolling out faster, more cost-efficient models, making genetic testing affordable enough to go mainstream. At the same time, researchers are discovering new treatments in which genetics may play a role. “What we’re seeing over time is, the applications of this technology might be far broader than they had thought,” Slater says, even as “it’s getting cheaper and cheaper.” Illumina is expected to grow earnings at an average rate of 20% annually over the next three to five years.
Such innovation is the common thread among the health care companies that Dave Eiswert, manager of the T. Rowe Price Global Stock Fund, gravitates toward. “In a slow-growth world, owning companies that are creating something out of nothing is a great thing,” says Eiswert. He likes Exact Sciences, the maker of an at-home kit for colon cancer screening, and Vertex Pharmaceuticals, the maker of cystic fibrosis treatments that can effectively cure the disease in many patients, Eiswert says. “That is creating value whether interest rates go up or not.”
PICKS:
Abbott Laboratories (ABT)
Merck (MRK)
Illumina (ILMN)
Exact Sciences (EXAS)
Vertex Pharmaceuticals (VRTX)
Below, the rest of “The 30 Best Stocks to Buy for 2019.”
- The 5 Best Financial Stocks to Buy for 2019—as Volatility and Interest Rates Rise
- The 5 Best Tech Stocks to Buy for 2019—When Facebook and Google Are Cheap
- The 5 Best Retail Stocks to Buy for 2019 Along With Amazon
- The 3 Best Asia Stocks to Buy for 2019 Even in a China Trade War
- The 6 Best International Stocks to Buy for 2019 Before the U.S. Economy Slows
A version of this article appears in the December 1, 2018 issue of Fortune, as part of the story “2019 Investor’s Guide Stocks and Funds: Safety Meets Strength.”
