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3 Medical Stocks to Inject Future Investments Into Your Portfolio

The healthcare sector is undergoing transformation amid expenditure growth and tech advances. Hence, fundamentally strong medical stocks, McKesson Corp. (MCK), Encompass Health (EHC), and USANA Health Sciences (USNA), might be solid investments now for garnering potential gains. Read more…

With economic growth and advancements in healthcare infrastructure, the medical sector is strategically poised to harness new prospects. It is currently undergoing significant transformation, with notable technological strides.

So, investors could consider investing in top medical stocks McKesson Corporation (MCK), Encompass Health Corporation (EHC), and USANA Health Sciences, Inc. (USNA) to strengthen their portfolio.

Healthcare is undergoing a transformation, supported by rising medical expenditures over the past few decades. As health consciousness and profitability prospects increase, the healthcare industry is expected to stay buoyed. The global healthcare services market is expected to reach $21.06 trillion by 2030, exhibiting an 8.3% CAGR.

The growing need for better patient care and rising novel technologies used in patient care, amid chronic diseases taking a rising toll on lives, is anticipated to be the main driving force of hospital facilities. The size of the U.S. hospital facilities market is anticipated to expand at a CAGR of 7.7% from 2023 to 2030.

Furthermore, with the significant involvement of technology and diagnostics in modern healthcare, the global medical devices market is anticipated to achieve a revenue of $471.80 billion in 2023. The industry is forecasted to expand at a CAGR of 5.3% to reach $609.70 billion by 2028.

Considering these conducive trends, let’s examine the fundamentals of the three medical stock picks.

McKesson Corporation (MCK)

MCK is a global healthcare services company with segments in pharmaceutical distribution, technology solutions, medical-surgical supply, and international operations. It provides a range of products and services to healthcare providers worldwide.

On August 16, MCK and Genpact Limited (G) extended their 13-year partnership, focusing on AI and automation to advance finance operations, scale digital initiatives, and reduce costs.

The collaboration aims to accelerate MCK's digital finance vision for strategic growth in healthcare, in which G's role enhances cost efficiency, customer experience, and Net Promoter Score (NPS).

On October 26, the company declared a quarterly dividend of $0.62 per share of common stock, payable to shareholders on January 2, 2024. Its annual dividend of $2.48 yields 0.54% on prevailing prices. MCK grew its dividend payouts at a CAGR of 10.7% over the past three years and 9.7% over the past five years.

For the fiscal second quarter, which ended September 30, 2023, MCK’s revenues grew 10.1% year-over-year to $77.22 billion. The company's adjusted EPS amounted to $6.23, up 2.8% from the prior year's period. Its adjusted gross profit and adjusted earnings stood at $3.05 billion and $841 million, respectively.

Street expects MCK’s revenue and EPS to grow 9.9% and 1.3% year-over-year to $77.49 billion and $6.99, respectively, for the third quarter ending December 2023. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.

MCK shares increased 20.4% over the past year and 23% year-to-date to close the last trading session at $461.37.

MCK’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MCK has a B grade for Value, Stability, and Sentiment. Within the Medical - Services industry, it is ranked #3 out of 66 stocks.

In addition to the POWR Ratings stated above, one can access MCK’s additional Growth, Momentum, and Quality ratings here.

Encompass Health Corporation (EHC)

EHC provides specialized inpatient rehabilitation services for individuals with physical or cognitive disabilities in the United States. It operates rehabilitation hospitals and serves patients under various programs, including Medicare and private insurers.

On November 15, EHC opened a 56-bed inpatient rehabilitation hospital in Fitchburg, Wisconsin, specializing in stroke recovery, neurological disorders, brain injuries, spinal cord injuries, amputations, and orthopedic conditions. This should add to the company’s topline growth.

For the third quarter, which ended September 30, 2023, EHC generated net operating revenues of $1.21 billion, up 10.8% from the year-ago quarter. The company's adjusted EBITDA and adjusted EPS from continuing operations increased 21.6% and 28.4% year-over-year to $237.50 million and $0.86, respectively.

For full-year 2023, EHC anticipates net operating revenue to range from $4.77 billion to $4.80 billion, adjusted EBITDA between $940 million and $955 million, and adjusted EPS from continuing operations attributable to EHC expected to be between $3.41 and $3.52.

EHC’s revenue and EPS are expected to grow 8.3% and 3.1% year-over-year to $1.26 billion and $0.91 for the first quarter ending March 2024, respectively. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Shares of EHC increased 15.9% over the past year and 10.7% year-to-date to close the last trading session at $66.19.

EHC’s POWR Ratings reflect this positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

EHC has a B grade for Sentiment. Within the Medical - Hospitals industry, it is ranked #4 among 11 stocks.

Click here for EHC’s additional Growth, Value, Momentum, Stability, and Quality ratings.

USANA Health Sciences, Inc. (USNA)

USNA develops and sells science-based nutritional, personal care, and skin care products globally, including essentials and skincare under the Celavive brand. The company operates in multiple regions and has research collaborations with institutions.

On November 21, USNA received the Utah Manufacturers Association's Manufacturer of the Year award for the second consecutive year. The recognition emphasizes USNA's commitment to excellence in manufacturing, featuring high-speed tablet presses, FDA registration, and GMP certification.

With nearly 70% of products made in-house, the award highlights USNA's leadership in the industry, supported by the Utah Manufacturers Association's long-standing dedication to advancing manufacturing in the state.

On October 18, it was reported that USANA Health Sciences was signed as the Official Supplement Supplier for USA Bobsled/Skeleton (USABS), the national governing body for bobsled and skeleton racing in the United States. This underscores the company’s proficiency as a prominent supplement manufacturer.

For the fiscal third quarter, which ended September 30, 2023, USNA’s net sales and net earnings stood at $213.37 million and $11.35 million, respectively. The company achieved gross profit and EPS of $170.84 million and $0.59, respectively. As of September 30, USNA had $390.46 million in total current assets, compared to $384.38 million as of December 31, 2022.

Analysts expect USNA’s revenue and EPS to be $213.02 million and $0.52, respectively, for the fourth quarter ending December 2023. The company surpassed the revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 2.1% over the past month and marginally intraday to close the last trading session at $47.16.

USNA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

USNA has an A grade for Value and Quality. Within the A-rated Medical - Consumer Goods industry, it is ranked #3 of 10 stocks.

To see USNA’s additional POWR Ratings for Growth, Momentum, Stability, and Sentiment, click here.

What To Do Next?

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MCK shares were trading at $464.73 per share on Monday morning, up $3.36 (+0.73%). Year-to-date, MCK has gained 24.43%, versus a 20.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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