While the first half of 2024 delivered superior gains across the major indexes, some investors might be concerned about recent stock market volatility. There is also uncertainty about the Federal Reserve's much anticipated but yet-to-be-enacted interest rate cuts, and what they could mean for businesses across industries. No investor can know what the market will do in the coming months.
However, some industries tend to be more resilient than others in times of economic turbulence, and healthcare is one of them. While no company is impervious to rising costs or economic headwinds, people need medicines, treatments, and other healthcare services no matter what is happening with the stock market or the macroeconomic landscape.
On that note, if you have cash to invest now, here are two top healthcare stocks to consider adding to your portfolio.
1. UnitedHealth Group
UnitedHealth Group(NYSE: UNH) is one of the world's leading healthcare companies by revenue, thanks to a diversified business that features everything from insurance services to specialty pharmacy solutions. The company has dealt with some headwinds lately from a cyberattack earlier this year that resulted in it paying out billions to affected providers.
At the time of the company's second-quarter earnings report, management affirmed that UnitedHealth Group had distributed more than $9 billion in advance funding and interest-free loans to help healthcare providers whose operations were affected by the attack. However, considering the company had approximately $31 billion on its balance sheet at the end of Q2, it was more than able to handle these obligations and continue paying out its long-standing dividend.
UnitedHealth has an enviable history of maintaining and raising its dividend, and it has increased its payout by approximately 94% over the last five years alone. The stock has a yield of around 1.4% at the time of this writing, with a forward annual dividend rate of $8.40 per share. The company maintains a reasonable payout ratio of about 51% of earnings.
Right now, the company is contending with higher costs than usual thanks both to the financial assistance it's been lending to providers and increased levels of outpatient care that are boosting its outlays. Still, in addition to a solid cash position, UnitedHealth Group is still growing revenue steadily and is habitually profitable.
Overall revenue rose 6.5% year over year in the second quarter to $98.9 billion, while earnings from operations totaled $7.9 billion. The company brought in operating cash flow of $6.7 billion in the period -- 1.5 times its net income. UnitedHealth also boosted its dividend by 12% in Q2, making 2024 its 15th consecutive year of double-digit percentage increases.
UnitedHealth Group looks like a smart way to invest in a storied healthcare business that provides steady income to boot, and that's a valuable buying proposition in any type of market.
2. Intuitive Surgical
Intuitive Surgical(NASDAQ: ISRG) is a leader in robot-assisted surgery, with a portfolio of surgical platforms that are used by healthcare providers around the world. The company's da Vinci surgical systems were used to perform more than 2.2 million minimally invasive procedures in 2023 alone, and more than 15 million to date.
Intuitive Surgical recently launched the latest generation of its flagship system, the da Vinci 5. Featuring more than 10,000 times the computing power of its predecessors, it leverages the power of artificial intelligence and machine learning to improve surgeon accuracy and deliver enhanced patient outcomes.
The da Vinci 5 was approved by the Food and Drug Administration in March. Intuitive Surgical placed a total of 341 da Vinci systems for customers in the second quarter, and 70 of them (approximately 20% of that total) were its latest model. The company grew its overall installed base of da Vinci systems to 9,203 in the period, a healthy 14% bump from one year ago.
Revenue in the second quarter totaled $2.01 billion, also up 14% from the corresponding quarter in 2023. Profits accelerated at an even faster clip of 25% to $527 million.
Over 80% of Intuitive Surgical's revenue comes from recurring revenue rather than the one-time sales of its systems. That recurring revenue comes from multiple sources, including medical providers buying replacement instruments and accessories for its surgical systems, operating leases, and fees attached to the multiyear service contracts for those systems.
Leases accounted for 51% of the company's surgical system placements in the second quarter, a trend that management expects will grow over time. Intuitive Surgical had close to $5 billion in cash on hand at the end of the quarter. Its history of top- and bottom-line growth revolves around an enviable recurring-revenue business that remains the leader in surgical robotics. Investors might want to take a look at scooping up some shares of this stock before summer ends.
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Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
