7 'Off-the-Pharm' Healthcare Stock Picks for 2023

Healthcare stocks, from pharmacies to insurance, have been relative outperformers over the past year, as investors rotate out of technology and other momentum sectors and shift towards more defensive names. In the MoneyShow Top Picks 2023 report, six investment experts look beyond the traditional pharmaceutical names to highlight their favorite general heath sector plays for the coming year. John Staszak, Argus Research Centene -- a Top Pick for 2023 -- is an international healthcare company; the firm offers services to government-sponsored and commercial healthcare providers. Based in St. Louis, Centene has an emphasis on underinsured and uninsured individuals. The company is the largest Medicaid managed care organization in the U.S. and a leading provider of insurance under the Affordable Care Act. The company has grown primarily through the acquisition of other health plans and services, including Magellan Health Care for $2.2 billion in January 2022, and Medicare insurer WellCare for $19.6 billion in January 2020. Management now projects EPS of $5.65-$5.75, up from a prior $5.60-$5.75. This is the fourth time this year that management has raised guidance. Reflecting recent contract wins in North Carolina, management's guidance, and positive earnings surprises in five of the past six quarters, we are keeping our EPS estimates at $6.00 for 2022 and $6.80 for 2023. Our long-term earnings growth rate estimate is 15%. We think that CNC shares are attractively valued at recent prices near $86, above the midpoint of their 52-week range of $61-$99. On a technical basis, the shares have been in a long-term bullish pattern of higher highs and higher lows that dates to September 2019, though they have fallen sharply with the market since mid-August. On a fundamental basis, the shares recently traded at about 12.7-times our 2023 EPS estimate, near the midpoint of the historical range of 10-16. Compared to the peer group, the shares are trading at below-average multiples, which we think is unwarranted given the company's strong growth prospects. We are maintaining our buy rating and raising our target price to $99. Jason Bodner, MAPSignals Doximity is interesting in that it melds two sectors: healthcare and tech. It is technically in the Healthcare sector and in the Healthcare Administrative Support Services industry, however Doximity operates an online platform for medical professionals. Its cloud-based software has the ability to enable users to collaborate with their colleagues, coordinate patient care, conduct virtual patient visits, stay up to date with the latest medical news and research, and manage their careers. The company was founded by Shari Buck, Konstantin Guericke, Nate Gross, and Jeffrey A. Tangney on April 16, 2010 and is headquartered in San Francisco, CA. It is a small-cap company with terrific growth prospects. Health records continually move to digitized versions as opposed to old paper files. The same is true for care and collaboration. Health is generally a recession resistant industry as sick people need care regardless of the economy. Buy signals for DOCS were very prominent in 2021 -- but that abruptly ended as the market shifted away from growth as it became unfavorable. But with it's outstanding fundamentals, and recent buying support, there are strong odds for Doximity to see a resurgence in share price for 2023. Additionally, my MAP Top 20 report is a list of the 20 strongest stocks getting bought in an unusual way. These stocks have historically market-beating returns over our 32+ year data history. We can see that DOCS just made a new entry into the top 20. DOCS has appeared on my top 20 report 11 times since July of 2014. It has great fundamentals and visible institutional support. Jimmy Mengel, The Profit Sector It's no secret that we humans can be a vain bunch. We want to turn back the hands of time as we age. That's why elective cosmetic surgery has surged past pre-pandemic levels. Almost 30% of clinics have noted that their business has doubled since 2019. A major motivation for the rise is what is called the Zoom Effect. People -- especially women between 31 and 45 -- have become incredibly self conscious on those virtual meetings that have replaced the day-to-day, in-person ones. The key difference? You are staring at your own face for hours on end. Yikes -- every wrinkle, pimple and imperfection you've ever had is literally staring you in the face. One objection to plastic surgery is that going under the knife sounds scary, is painful and carries some dangerous side effects. However, one company is seeking to change that with the least invasive procedures currently available. Israel-based InMode Ltd. is a leading global provider of innovative medical technologies. Instead of using invasive elective surgeries, the company develops, manufactures, and markets platforms that harness novel radio-frequency (RF) based technology. In essence, a doctor will use a wand that is connected to a machine that creates radio waves. They will pass the wand over your body to apply those radio waves to your skin -- safely and rather painlessly. These deep subdermal radio-frequencies are used to do everything from facelifts, eye tightening and remodeling tissue and fat. No knives required. InMode has just posted record quarterly revenue and just signed actress, model and influencer Eva Longoria as its global brand ambassador to grow the company overseas. As the population ages and the trend of cosmetic surgery continues, InMode is in a great position for 2023 and beyond. Jim Osman, The Edge Spinoff Report Lite Organon & Co. is the June 2021 spinoff of the women's health, biosimilar and legacy drugs businesses from parent company Merck & Co. . Founded in 1923 in the Netherlands, OGN made insulin as its first product. It was later merged into what became the Amesterdam-based Akzo Nobel in 1969, later acquired by Schering-Plough in 2007, then bought and folded into Merck in 2009. We initiated research on OGN during the process of its spinoff from Merck in June 2021. In September 2021, a new director Ma Fatima Fama de Vera Francisco had bought shares on the open market at around $34, indicating her confidence in the stock. As well as serving on OGN's board, she is also the CEO of the Baby & Feminine Care segment at Procter & Gamble , further reinforcing her expertise in the space. This was on top of Congressman Michael McCaul (R-TX) buying OGN shares on June 21, 2021, and his own strong track record of previous buys. We continue to see OGN as the best women's health play -- with comfortable net debt, continued dividend payments at $0.28 a share (a 4% annual yield), and the reacquired rights to Bayer's contraceptive product rights in China. The stock recently tradesd about 18% below its spinoff price, and at the recent price looks to be sufficiently at value-buy levels. We recommend long-term investors enter/hold OGN with a base case target price of $38.70 (+40% potential upside from current market price). Chuck Carlson, DRIP Investor One stock that provides an interesting play in the healthcare space is CVS Health . Most investors know CVS by its drugstores. But CVS is also a major pharmacy benefits manager (CVS Caremark) and a major insurer (Aetna). What also will surprise most investors is the size of CVS -- the firm will do roughly $325 billion in revenue in 2023. CVS provides healthcare services through a variety of channels and over 300,000 employees, including more than 40,000 physicians, pharmacists, nurses, and nurse practitioners. Despite the company's massive size, CVS should still grow the top and bottom lines in 2023, and mid-to-high single-digit growth is likely for the long term. CVS, yielding 2.1%, offers a good total-return play for investors. After a number of years of no dividend growth, the dividend was boosted 10% in early 2022. Downside risk for the stock should be limited to the mid-$80s. I expect the stock to test its 52-week high of $111 over the next 12 months. Another attractive dividend payer within the healthcare space with big rebound potential in 2023 is Walgreens Boots . Admittedly, Walgreens has not exactly been a stellar stock in recent years, including a subpar performance in 2022. However, I think things might be changing for the better for the company. The company has been expanding here via acquisitions, including the recent majority share acquisition of CareCentrix. CareCentrix is a leading independent platform that coordinates care to the home for health plans, patients, and providers. The deal accelerates Walgreens' capabilities in delivering health care across a spectrum of settings, including primary care, specialty pharmacy care, post-acute care, and home care. The stock's current dividend yield of around 5% is especially tasty, and I expect dividend payers to outperform the broader market in 2023. To be sure, I've been a long-time owner of Walgreens and have been fooled before by the stock. But the stock appears to be discounting a lot of bad news and should be able to beat expectations. For investors looking for a rebound candidate in a segment (dividend-paying healthcare stocks) that should do well in 2023, Walgreens fits the bill. Please note that both CVS and Walgreens offer direct-purchase plans whereby any investor may buy the first share and every share directly from the company. Shares may also be purchased via any brokerage firm. Nate Pile, Nate's Notes In the same way that the biopharma sector led the overall market lower in early 2022, biotech is already emerging as one of the sectors that is likely to lead the market higher as 2023 gets underway. A conservative Top Pick for 2023 is one that I have recommend in the past -- Tekla Life Sciences . As its name suggests, this closed-end fund invests in a variety of publicly traded and private companies doing work in the life sciences sector (and biotechnology, in particular). The fund's top-five holdings (as of the end of September) being names that many investors are probably already familiar with Gilead Sciences , Amgen , Vertex , Regeneron , and one that is also a long-time holding in Nate's Notes, Illumina . Along with these industry leaders, the fund also holds positions in a number of smaller development-stage companies as well, including a number of private companies. And while it is true that investors can probably get more bang for their buck by owning individual stocks in the sector, there is something to be said for being able to gain quite a bit of diversification in the sector with a single purchase, especially if the one is more risk-averse and does not want to experience the high levels of volatility that are often associated with investing in biotech stocks. Along with the instant diversification that comes with owning shares of the fund, Tekla Life Sciences also has a policy of paying out 2% of its net assets every quarter, so investors also get paid to wait -- a rarity when it comes to investing in biotech. Though the default is for the distribution to be paid in new shares (and we always take new shares rather than cash in the newsletter's portfolios), investors have the option of asking for cash instead -- just contact your broker to change the default setting for your account. HQL is considered a strong buy under $14 and a buy under $18.

7 'Off-the-Pharm' Healthcare Stock Picks for 2023

Six investment experts look beyond the traditional pharmaceutical names to highlight their favorite sector plays for the coming year.

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