The Best Healthcare Stocks to Buy

Healthcare stocks appeal to investors for a few different reasons.

• They are considered defensive, meaning they can hold up better than some other sectors during an economic slowdown.
• Demand for health-related products and services continues to rise as populations age.
• Healthcare companies tend to have high research and development spending, which can generate major improvements in treatment options.

In 2025 through Oct. 14, the Morningstar US Healthcare Index rose 5.82%, while the Morningstar US Market Index gained 13.95%.

The 12 Best Healthcare Stocks to Buy Now

These were the most undervalued healthcare stocks that Morningstar’s analysts cover as of Oct. 14, 2025.

1. Coloplast CLPBY
2. Philips PHG
3. Bristol-Myers Squibb BMY
4. Zimmer Biomet Holdings ZBH
5. GSK GSK
6. Merck MRK
7. Danaher DHR
8. Novo Nordisk NVO
9. GE HealthCare Technologies GEHC
10. Roche RHHBY
11. Thermo Fisher Scientific TMO
12. Zoetis ZTS

To come up with our list of the best healthcare stocks to buy now, we screened for:

• Healthcare stocks that are undervalued, as measured by our price/fair value metric.
• Stocks that earn a wide Morningstar Economic Moat Rating. We think companies with wide economic moat ratings can fight off competitors for at least 20 years.
• Stocks that earn a Low, Medium, High, or Very High Morningstar Uncertainty Rating, which captures the range of potential outcomes for a company’s fair value.

Here’s a little more about each of the best healthcare stocks to buy, including commentary from the Morningstar analysts who cover each company. All data is as of Oct. 14.

Coloplast

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Medical Instruments and Supplies

Medical supplies company Coloplast is the cheapest stock on our list of the best healthcare stocks to buy. Coloplast is a leading global competitor in ostomy management and continence care. The stock is trading 41% below our fair value estimate of $14.90 per share.

Based in Denmark, Coloplast is a leader in global ostomy and continence care. The firm has made inroads into the concentrated urology and fragmented woundcare markets, but it remains a peripheral player there. In contrast, Coloplast has a long record of consistent and meaningful innovation in ostomy and continence care that has led to a dominant position in Europe and growth in the US. Since 2008, the firm has done an admirable job of trimming its cost structure as it focused on profitable growth. After shifting the majority of its production to Hungary, China, and Costa Rica, Coloplast now enjoys a gross margin that beats that of rival Convatec by more than 1,150 basis points. Currently, Coloplast is altering its emphasis to enhance growth by entering new geographies, with an emphasis on the United States.

We’ve long been impressed with the firm’s ability to provide thoughtful, user-friendly improvements to its ostomy and intermittent catheters, which have won over end users. Most recently, Coloplast has upped its game with the incorporation of more sophisticated technology in its supplies and corresponding investment in clinical studies to demonstrate the value of these improvements. For example, new intermittent catheter Luja empties the bladder more fully to reduce the risk of urinary tract infections.

We are less keen on Coloplast’s woundcare segment, where competitive product launches abound. Coloplast’s woundcare portfolio had historically centered on low-tech foam, leaving the firm more vulnerable as advanced woundcare has moved toward hydrofiber and antibacterial products. Further, as with all competitors in this market, Coloplast faces relatively low switching costs for customers. Additionally, the majority of woundcare products are sold to providers (versus directly to patients themselves), which means there is greater pricing pressure from group purchasing organizations and government-sponsored tenders. However, Coloplast’s acquisition of Kerecis puts the firm in a strong position to compete in the fast-growing biologic wound care niche with its unique fish skin therapies.

Read more about Coloplast here.

Philips

• Morningstar Price/Fair Value: 0.66
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Medical Devices

Koninklijke Philips is a diversified global healthcare company operating in three segments: diagnosis and treatment, connected care, and personal health. The firm earns a wide economic moat rating, and the shares of its stock look 34% undervalued relative to our $41 fair value estimate.

Philips is one of the leaders in imaging and image-guided therapies. But the company’s track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able to change the narrative, but uncertainty remains.

Philips’ diagnosis and treatment segment, composed of imaging, ultrasound, and image-guided therapy lines, is a member of the Big Three, along with Healthineers and GE HealthCare. Philips lacks the overall scale and footprint of its larger peers in diagnostic imaging but has strong presence in a number of modalities and the product portfolio breadth that allows it to compete effectively. In imaging areas, such as cardiovascular IGT, cardiac ultrasound, and monitoring, Philips is the industry leader and should capitalize on many favorable trends in the industry. We expect global demand for imaging equipment and services to grow in midsingle digits over the next decade, driven by the demographic shifts, expanding healthcare access, and penetration of new customer channels. All three main industry participants stand to benefit from total addressable market growth and also greater share at the expense of smaller and more niche providers.

However, Philips’ performance has been problematic for a number of years, punctuated by the massive and prolonged struggles in sleep care. Litigation resolution in 2024 is the important step in rebuilding sleep care, but the pathway and the ability for Philips to claw back its market position remains highly uncertain.

Emphasis on profitability is key. The company’s operating margins have been decimated by the sleep care issues but also by significant component sourcing challenges and margin compression in imaging. Currently, Philips materially lags its imaging peers on profitability, and we don’t expect this gap to close soon. However, we do believe that the margins have bottomed and should improve. But Philips has a long way to go to restore investor trust.

Read more about Philips here.

Bristol-Myers Squibb

• Morningstar Price/Fair Value: 0.66
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General

Next on our list of the best healthcare stocks to buy is Bristol-Myers Squibb. Bristol-Myers Squibb discovers, develops, and markets drugs for various therapeutic areas, such as cardiovascular, cancer, and immune disorders. The stock is trading at a 34% discount to our fair value estimate of $66 per share.

Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. This strategy is evident in the firm’s acquisition of Celgene, which netted the firm an excellent pipeline and a strong foothold in blood cancer. More recent acquisitions in 2024—oncology firms Mirati and RayzeBio and neurology firm Karuna—also help support Bristol’s strong overall pipeline and wide moat.

The acquisition of Medarex in 2009 helped secure Bristol’s strong first-mover advantage in cancer immunotherapy, bringing rights to novel antibodies against PD-1 (Opdivo) and CTLA4 (Yervoy) used in melanoma as well as other cancers, including lung and kidney cancers. A newer combination drug Opdualag is also approved in melanoma, with ongoing trials in lung cancer. Competition from Merck’s market-leading PD-1 Keytruda and a 2028 US patent expiration for Opdivo are clear headwinds. However, a recently approved subcutaneous version of Opdivo will help slow sales declines, buying time for Bristol’s pipeline to advance. BioNTech-partnered pipeline program pumitamig is in phase 3 testing in certain forms of breast and lung cancers, and could be an early mover among new, bispecific immunotherapy drugs.

Bristol is aggressively repositioning itself to expand through challenging patent losses for drugs representing 47% of its 2024 sales, including cancer drugs Revlimid and Pomalyst, by 2026, and cardiovascular drug Eliquis (marketed with Pfizer) in 2028. The 2019 Celgene acquisition moved Bristol deeper into blood-related disease, which tends to be an area with strong drug pricing power and should help Bristol in a time when both governments and private payers are pushing back on drug prices. Blood cancer cell therapy Breyanzi and anemia drug Reblozyl have secured leading positions in the US market, and pipeline drugs iberdomide and mezigdomide are in phase 3 trials. Beyond Celgene, the 2020 Myokardia acquisition (cardiology drug Camyzos) and 2024 Karuna acquisition (schizophrenia drug Cobenfy) are poised to each generate multi-billion-dollar annual sales. We are monitoring data updates in 2026 that could expand labels or help secure new launches.

Read more about Bristol-Myers Squibb here.

Zimmer Biomet Holdings

• Morningstar Price/Fair Value: 0.76
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Medical Devices

Zimmer Biomet designs, manufactures, and markets orthopedic reconstructive implants as well as supplies and surgical equipment for orthopedic surgery. The firm earns a wide economic moat rating, and the shares of its stock look 24% undervalued relative to our $130 fair value estimate.

Zimmer Biomet is the undisputed king of large-joint reconstruction, and we expect aging baby boomers and improving technology suitable for younger patients to fuel solid demand for large-joint replacement that should offset price declines. Zimmer stumbled into a series of pitfalls in 2016-17, including integration issues, supply and inventory challenges, and quality concerns. The firm’s efforts to turn itself around have been admirable, though the pandemic slowed progress. Now Zimmer is seeking to capitalize on the normalization of procedure volume and placements of its Rosa robot.

Zimmer’s strategy is two-pronged. First, it is focused on cultivating close relationships with orthopedic surgeons who make the brand choice. High switching costs and high-touch service keep the surgeons closely tied to their primary vendor. This tight relationship and vendor loyalty also help explain why market share shifts in orthopedic implants are glacial, at best. As long as Zimmer can launch comparable technology within a few years of its rivals, it can remain in a strong competitive position. Nevertheless, we think surgeon influence will inevitably erode, as the practice of medicine changes in response to healthcare reform. Over the long term, it will be more difficult for surgeons to run private practices profitably, and more of them will be open to employment at hospitals.

Second, the firm aims to accelerate growth through innovative products and improved execution. The latter is critical, in our view, to realizing the firm’s potential. Despite a range of structural competitive advantages, Zimmer Biomet in 2016-18 failed to shine in operations, which dragged down returns. Former CEO Bryan Hanson delivered substantial signs of progress. Now, current CEO Ivan Tornos must continue the progress on Rosa robot placements (especially in outpatient settings), related consumable product pull-through, and expansion of the firm’s digital portfolio. Additionally, we anticipate the firm will flex its advantage in key areas, including extremities, trauma, and collaborations that involve sensor and digital technologies to improve surgical workflow.

Read more about Zimmer Biomet Holdings here.

GSK

• Morningstar Price/Fair Value: 0.76
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General

In the pharmaceutical industry, GSK ranks as one of the largest firms by total sales. GSK is an affordable healthcare stock, trading at a 24% discount to our fair value estimate of $58 per share. The drug manufacturer earns a wide economic moat rating.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company’s innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

The magnitude of GSK’s reach is evidenced by a product portfolio that spans several therapeutic classes. The diverse platform insulates the company from problems with any single product. Additionally, the company has developed next-generation drugs in respiratory and HIV areas that should help mitigate both branded and generic competition. We expect GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade.

On the pipeline front, GSK has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on oncology and immunology, with genetic data to help develop the next generation of drugs. The benefits of these strategies are showing up in GSK’s early-stage drugs. We expect this focus will improve approval rates and pricing power. In contrast to respiratory drugs, treatments for cancer indications carry much stronger pricing power with payers.

We think GSK’s decision to divest the consumer business is likely to unlock value over the long run. GSK divested Haleon, its consumer group, in July 2022. Given the strong valuations of consumer healthcare companies, we expect this unit will yield a stronger valuation than what was implied within the company’s structure before the divestment.

Read more about GSK here.

Merck

• Morningstar Price/Fair Value: 0.76
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General

Merck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiometabolic disease, cancer, and infections. Trading 24% below our fair value estimate, Merck has an economic moat rating of wide. We think shares of this stock are worth $111 each.

Merck’s combination of a wide lineup of high-margin drugs and a pipeline of new drugs should ensure strong returns on invested capital over the long term. While we expect the firm could see sales declines in the late 2020s as patents in core oncology drug Keytruda expire in the US, it is likely that pipeline launches will limit these declines to a roughly two-year period during 2029-30. On the pipeline front, after several years of only moderate research and development productivity, Merck’s drug development strategy is yielding important new drugs.

As a large biopharma firm, Merck relies on new products (internally developed or acquired) to mitigate generic competition from older drugs with expired patent protection. Keytruda (47% of 2024 sales) is central to the portfolio, driven by strong clinical data across cancer indications, including a first-mover advantage in one of the largest cancer indications of non-small cell lung cancer. Keytruda’s US patent expires in 2028, with Medicare negotiations now expected by 2029. However, international patents run until 2031-33, and a subcutaneous version (designed for the roughly 50% of Keytruda patients who don’t require chemotherapy) has patents extending until 2039. We also expect new cancer drug launches, including combinations with Keytruda, will further support Merck’s overall drug sales. However, we expect intense competition in the cancer market with several competitive drugs likely to report important clinical data over the next couple of years, including Akeso/Summit Therapeutic’s bispecific ivonescimab.

Beyond oncology, we see multibillion-dollar annual sales potential for several launched products, including pulmonary arterial hypertension drug Winrevair and pneumonia vaccine Capvaxive. We’re also watching for progress with the firm’s oral cholesterol-lowering drug enlicitide (which had a positive phase 3 top-line announcement in June 2025) and immunology drug tulisokibart (a differentiated therapy in phase 3 testing).

Read more about Merck here.

Danaher

• Morningstar Price/Fair Value: 0.76
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Diagnostics and Research

In 1984, Danaher’s founders transformed a real estate organization into an industrial-focused manufacturing company. Danaher is an affordable healthcare stock, trading at a 24% discount to our fair value estimate of $270 per share. The diagnostics and research firm earns a wide economic moat rating.

Through its Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and also divesting assets that are no longer seen as core, such as the recently divested Veralto operations. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making research and development and marketing-related investments. It also implements lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher’s strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams.

The company’s acquisition-focused strategy has contributed to its becoming a top-five player in the highly fragmented and relatively stable life sciences and diagnostic tool markets, approximately 20 years after its first acquisition in the space (Radiometer in 2004). Important life sciences and diagnostic acquisitions have included Beckman Coulter, Pall, and Cepheid. In early 2020, Danaher completed its largest acquisition, GE Biopharma, now known as Cytiva, which fills some gaps for Danaher within the biopharmaceutical development and manufacturing tool market. We find the drug manufacturing part of the life sciences market particularly attractive given its strong growth trajectory, high margins, and high switching costs associated with regulatory and reproducibility concerns of end users. Management has started making more acquisitions in that space, such as Aldevron, and we would expect more tuck-in acquisitions in this and other end markets given its intense focus on acquisitions.

Danaher also continues to prune its portfolio of businesses. The recent divestiture of its environmental and applied solutions group (now called Veralto) is just the latest for the company, which distributed shares in the now publicly traded Fortive Corp (industrials) to shareholders directly in 2016 and in Envista (dental) in 2019. Additional divestitures may be possible in the future as well.

Read more about Danaher here.

Novo Nordisk

• Morningstar Price/Fair Value: 0.80
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General

With roughly one-third of the global branded diabetes treatment market, Novo Nordisk is the leading provider of diabetes care products in the world. Trading at 20% below our fair value estimate, Novo Nordisk has an economic moat rating of wide. We think shares of this stock are worth $71.

A pioneer in diabetes care, Novo Nordisk has been in the business for over 85 years. It claims 34% of the $80 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes’ prevalence is expected to soar in the coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

Insulin need will grow as more patients are diagnosed with and treated for diabetes, and as patients require more-intense regimens as their disease progresses. Demographic trends are strengthened by a market shift from human insulin toward modern insulin analogs (Novo’s Levemir and NovoLog), next-generation insulin analogs (Tresiba, Fiasp), and a novel weekly insulin, which offer improved efficacy, safety, and convenience for patients. However, pricing pressure is intense in the US (due to pressure from pharmacy benefit managers and biosimilar usage) and China (due to volume-based procurement). In addition, delayed insulin treatments due to the success of GLP-1 therapy are creating a temporary volume headwind.

Novo’s growth is largely coming from GLP-1 therapies, which include daily Victoza, weekly Ozempic, and daily oral Rybelsus. Strong efficacy and cardiovascular benefits should allow Novo to continue growing sales of GLP-1 therapies in diabetes. Ozempic and Rybelsus helped Novo gain share over Eli Lilly’s once-weekly Trulicity and support growth. Lilly is again gaining share with novel drug Mounjaro, although class growth is so strong that we expect both franchises to grow for years to come.

Semaglutide’s potential in new indications and an amylin-targeting pipeline also give us confidence in Novo’s wide moat. Approved as Wegovy in obesity in June 2021, semaglutide is in phase 3 testing in areas like fatty liver disease, Alzheimer’s disease, and heart failure. Novo is also testing new combination regimens like cagrisema and amycretin that could offer even more compelling blood sugar control and weight loss, which could help the firm maintain a solid position.

Read more about Novo Nordisk here.

GE HealthCare Technologies

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Health Information Services

GE HealthCare Technologies is a medical technology firm with a leading market share in imaging and ultrasound equipment. GE HealthCare Technologies is an affordable healthcare stock, trading at a 19% discount to our fair value estimate of $89 per share. The health information services firm earns a wide economic moat rating.

Wide-moat GE HealthCare, or GEHC, is a top-three global leader in the medical imaging market. It has a firmly established footprint in hospitals and health networks around the world, and it is positioned to benefit from long-term healthcare trends, including aging populations, the growing demand for early detection and monitoring of cancer and other diseases, and increasing utilization of minimally invasive and noninvasive procedures.

The medical imaging industry is a somewhat consolidated oligopoly, with the top three players GEHC, Siemens Healthineers, and Philips controlling about 70% of the market. They largely compete by improving their technology and features rather than outright price competition. Like its peers, GEHC has invested heavily over many decades to build a comprehensive product portfolio and extensive 24-hour servicing networks, which are crucial for selling to big hospitals and health networks. Its large installed base also facilitates sales of software platforms and multiyear servicing contracts that further deepen GEHC’s integration into healthcare providers’ workflows. Unlike its peers, GEHC is also a major player in the pharmaceutical diagnostics market, which has attractive returns and potential upside with respect to the fast-growing “theranostics” market.

Although smaller players can compete in specific technologies or geographies, we think it would take a very long time for a newcomer to build the portfolio breadth, servicing networks, reputation, and large installed base necessary to compete with the top three players.

GEHC was spun out in December 2022, and since then management has committed to higher ongoing spending on research and development. We think this is an important measure to keep pace with its peers. Examples of recent or ongoing developments in the industry include integration of artificial intelligence into imaging workflows, the launch of photon-counting computed tomography, or CT, the recent approval of Alzheimer’s disease drugs, which could substantially increase demand for magnetic resonance, or MR procedures, the adoption of 3D mammography, and approvals of radiotracers various applications.

Read more about GE HealthCare Technologies here.

Roche

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General

Roche is a Swiss biopharmaceutical and diagnostic company. Roche is an affordable healthcare stock, trading at a 19% discount to our fair value estimate of $55 per share. The drug manufacturer earns a wide economic moat rating.

We think Roche’s drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavor. Strong information sharing continues between Genentech and Roche researchers, boosting research and development productivity and personalized medicine offerings that take advantage of Roche’s diagnostic expertise.

Roche’s biologics focus and innovative pipeline are key to the firm’s ability to maintain its wide moat and continue to achieve growth as current blockbusters face competition. Blockbuster cancer biologics Avastin, Rituxan, and Herceptin are seeing strong headwinds from biosimilars. However, Roche’s biologics focus (more than 80% of pharmaceutical sales) provides some buffer against the traditional intense declines from small-molecule generic competition. In addition, with the launch of Perjeta in 2012, Kadcyla in 2013, and Phesgo (a subcutaneous coformulation of Herceptin and Perjeta) in 2020, Roche has somewhat refreshed its breast cancer franchise. Gazyva, approved in CLL and NHL and in testing in lupus, as well as new bispecific antibodies Columvi and Lunsumio will also extend the longevity of the Rituxan blood cancer franchise. Roche’s immuno-oncology drug Tecentriq launched in 2016, and we see peak sales potential above $5 billion. Roche is also expanding outside of oncology with MS drug Ocrevus ($9 billion peak sales) and hemophilia drug Hemlibra ($6 billion peak sales). More recent deals have brought rights to promising development programs in immunology (Televant’s TL1A) and cardiometabolic (Carmot’s diabetes and obesity programs).

Roche’s diagnostics business is also strong. With a 20% share of the global in vitro diagnostics market, Roche holds the number-one rank in this industry over competitors Siemens, Abbott, and Ortho. Pricing pressure has been intense in the diabetes-care market, but new instruments and immunoassays have buoyed the core professional diagnostics segment.

Read more about Roche here.

Thermo Fisher Scientific

• Morningstar Price/Fair Value: 0.83
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Diagnostics and Research

Thermo Fisher Scientific sells scientific instruments and laboratory equipment, diagnostics consumables, and life science reagents. Thermo Fisher Scientific is an affordable healthcare stock, trading at a 17% discount to our fair value estimate of $630 per share. The diagnostics and research firm earns a wide economic moat rating.

While Thermo Fisher is weathering the pullback in global biopharmaceutical spending and China softness better than most of its peers, it is still not immune to the overall softness in the life science market. Having an unmatched portfolio of products, resources, and manufacturing capabilities has allowed the firm to retain and increase its wallet share among its customers across all channels. We expect the current budget-constrained environment to stay suppressed this year but to return to more normalized growth in 2026. Thermo Fisher remains in a great position to leverage its share gains in the biopharma channel and capitalize on strong long-term demand.

While bigger is not always better, Thermo Fisher had long committed itself to accumulate as robust a product offering, under one roof, as possible. To reach its ultimate goal of being a one-stop shop go-to provider of life science instruments and consumables, the company has spent aggressively throughout the years on internal efforts but particularly on acquisitions. More than $50 billion has been deployed since 2010 on this strategy (including the recent PPD acquisition), which, while accretive to the company’s reach, scale, and product breadth, has historically suppressed its returns on invested capital to rather modest levels. Not anymore.

While the uplift from covid-19 tests and vaccines has been significant, the swiftness and extent of the company’s response have cemented Thermo Fisher’s integral role within the segment. The company has long found a receptive audience to its pitch with large pharma clients, which see sizable benefits in the simplified procurement process Thermo Fisher offers. Accelerated by the pandemic, the critical supplier status has been extended to the firm by a much wider audience, including governments. We anticipate the firm’s penetration of all its customer channels to grow, aided by its expansion into contract research and manufacturing. We also think the company’s global reach will continue to resonate, and its already strong presence within rapidly growing emerging markets should expand further.

Read more about Thermo Fisher Scientific here.

Zoetis

• Morningstar Price/Fair Value: 0.84
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—Specialty and Generic

Drug manufacturer Zoetis rounds out our list of best healthcare stocks to buy. Zoetis sells anti-infectives, vaccines, parasiticides, diagnostics, and other health products for animals. The stock is 16% undervalued relative to our fair value estimate of $171 per share.

Zoetis is the undisputed leader in the global animal health industry, and we believe it possesses the widest moat of all the competitors. Zoetis has set itself apart based on the impressive innovation that shows up across its product portfolio, including a number of drugs for specific pet ailments such as separation anxiety. The firm has also sought to expand its presence into virtually every type of animal-related health market, including aquaculture and pet diagnostics.

The animal health industry had long been largely ignored because these businesses were buried within larger human health companies, but no longer. It has many attractive characteristics, including cash-pay buyers, a fragmented customer base, relatively low development costs, and opportunities to introduce novel therapies. Due to the fragmented and cash-pay customer base, animal drugmakers hold significant pricing power. On the human health side, firms are traditionally at the mercy of payers. Government payers or large managed care firms with pharmacy benefit managers have more power to force generic utilization, squash price increases, and even in extreme cases extract sizable rebates from drug manufacturers. However, animal health products are purchased by a fragmented group of protein producers, veterinarians, and pet owners, allowing very little bargaining power over the highly concentrated animal health firms.

This industry also benefits from favorable growth tailwinds that should allow Zoetis to increase companion animal revenue at a low-double-digit long-term growth rate. Zoetis has benefited from pet owners’ increasingly strong relationships with pets as members of the family, which drastically increases their willingness to pay for expensive treatments. We expect Zoetis to grow faster than the industry and maintain above-average margins because of its pricing power, as the companion animal segment rises to account for more than 70% of total revenue by 2029. Zoetis’ investments in dermatology, parasiticide, and monoclonal antibody innovation have been paying off handsomely here.

Read more about Zoetis here.

How to Find More of the Best Healthcare Stocks to Buy

Investors who’d like to extend their search for top healthcare stocks can do the following:

• Review Morningstar’s comprehensive list of healthcare stocks to investigate further.
• Stay up to date on the healthcare sector’s performance, key earnings reports, and more with Morningstar’s healthcare sector page.
• Read Morningstar’s Guide to Stock Investing to learn how our approach to investing can inform your stock-picking process.
• Use the Morningstar Investor screener to build a shortlist of healthcare stocks to research and watch.