Any investment portfolio is always well served with some exposure to healthcare, medical devices, and/or pharmaceutical stocks. You can own the sector for income, capital gains, or a combination of both. Regardless, it is an industry sector that is consistently good at making money for stockholders.
You can invest or speculate in large-cap, mid-cap or small-cap healthcare companies; the opportunities run the gamut and it’s not too difficult to find the right stocks to fit a particular risk tolerance level.
In the large-cap space, we previously looked at Becton, Dickinson and Company (BDX), which is a New Jersey-based medical instrument and supply company. (See “Why You Should Add Two Medical Stocks to Your Watch List.”)
This healthcare company has been a powerhouse wealth creator and one of many large-cap healthcare stocks that also pay dividends. Its current dividend yield is approximately two percent.
BDX has been soaring, especially since the beginning of last year, due to a solid financial performance and outlook for 2014.
According to the company, its revenues for the fourth fiscal quarter (ended September 30, 2013) were $2.1 billion for a 7.2% currency-neutral gain. Fiscal 2014 should see sales grow by four to five percent, and diluted earnings per share from continuing operations should grow between six and seven percent over fiscal 2013.
These aren’t growth stock-type gains, but we’re talking about a very mature enterprise.
Ten-times larger than BDX is Johnson & Johnson (JNJ). This is one of my favorite blue-chip healthcare stocks for long-term investors.
The company has a great, consistent track record of increasing its dividends over time, as well as revenues and earnings.
Johnson & Johnson also experienced substantial capital gains, breaking out of its traditional price action at the beginning of 2013. The Street expects a lot from this company, but it typically delivers, illustrating how lucrative business can be in pharmaceuticals and medical devices.
Johnson & Johnson is a member of the Dow Jones Industrial Average and is highly likely to see another quarterly dividend increase this year. Among a large universe of healthcare stocks, this one is a portfolio benchmark.
But not to be excluded are the countless small-cap stocks in this industry sector that offer good potential for capital gains in any kind of market. (Biotechnology stocks have been the hottest over the last 24 months.)
One small-cap company that I’ve liked for quite some time is Cerus Corporation (CERS), which is a small, but developing biomedical company focused on commercializing its “INTERCEPT Blood System.” This product is designed to improve blood safety by rendering pathogens, such as viruses, bacteria, and parasites, inactive in donated blood.
Third-quarter sales for Cerus in 2013 were approximately $10.5 million, for a comparative gain of 28%. The company is still operating at a substantial loss, but it’s developing in a very diligent and responsible manner, which is what I like to see in an early-stage technology play.
Healthcare stocks can be just as volatile as any growth industry sector. But institutional investors rally behind the sector on a consistent basis, because the earnings growth is there and it offers relative stability in the large-caps.
Any equity portfolio is well served by some exposure to healthcare stocks. It’s an industry sector requiring constant monitoring as trading opportunities are plentiful.