Top 3 Cheapest Healthcare Stocks to Buy Now? (2019 Review)

Healthcare stocks are some of the best long-term performers in the market, so let’s take a look at the cheapest healthcare stocks.

By “cheapest”, we want to own stocks that sell below what they are worth in the long term. We’ve seen a 20% market correction, so that means we should be able to find some value among a plethora of great stocks.

There is one pitfall with healthcare stocks right now, which is the decision by a Texas judge ruling Obamacare unconstitutional may create some near-term uncertainty. We don’t mind that, because uncertainty means lower prices.

However, we have to keep an eye out as to how these developments play out to see how they may affect healthcare stocks.

What’s In This Guide?

The Cheapest Healthcare Stocks For 2019

If you’re in a hurry, below are our picks for the lowest priced health care stocks as of this writing.

  1. UnitedHealth: A leading diversified healthcare company.
  2. Ventas: A top-tier healthcare REIT.
  3. Vanguard Health Care Mutual Fund: One of the best performing mutual funds I can find.

Keep reading to learn more about these inexpensive healthcare stocks and my thoughts on them.

What Are Healthcare Stocks?

Healthcare stocks don’t really have a firm definition. They can involve everything from hospitals to pharmaceutical companies to biotech to insurers to senior living facilities to REITs that lease property to any of those types of companies.

Yet here is the fundamental concept about healthcare stocks. They are investments that are tied to the core experiences of being a human being. There are certain investments that are just wrapped into our DNA to the point that, without them, we simply could not exist. Energy is one such sector.

Another is health care. Just like energy, it is a human requirement. It requires repeat purchasing and innovation. It’s obviously important, otherwise the country wouldn’t be torn apart over legislation involving it, and because it’s big business. Human beings the world over need health care and all it encompasses, from drugs to doctors to hospitals to technology to logistics…you name it.

How Do You Determine What Qualifies As The Cheapest Healthcare Stocks?

The cheapest healthcare stocks must have these three characteristics:

  1. A PEG ratio, or similar, that is at 50% or less of its historical valuation range
  2. A leader in their field
  3. Diversification

Read Also: What’re The Best Stocks Under $20 Bucks?

PEG ratio 50% less than historical range

If you are going to invest in the cheapest healthcare stocks, then those stocks must sell at a valuation that is closer to the cheaper end of its historical range than its expensive end.

Most stocks trade in a valuation range depending on how its earnings growth relates to price. Most analysts just look at a range of P/E ratios. The problem with that is that a stock can have a very low P/E ratio because it hit hard times, or a high one because the stock got ahead of itself.

I look at a range of PEG ratios, which shows a range of P/E ratios in relation to expected earnings, so it will create less volatility in that range.

Field leader

The cheapest healthcare stocks might sometimes be cheap for a bad reason, such as faltering earnings or cash flow, or a lack of drugs in a biotech pipeline, or a failed clinical trial.

That’s why I will only choose stocks that are one of the leaders in its particular field. I want the experts. I want the proven performers. I want the companies that have shown they can withstand all types of good times and bad times.

Diversification

I talk about diversification in almost every article, but it’s one of the top two most important elements I usually demand in a stock.

Diversification is crucial so that a company is not relying on just one good or service. If it is, it can be upended by competition, or by failing to execute.

With multiple services, goods, properties, products, or whatever the company is involved in, the likelihood of catastrophe is substantially reduced.

Here’s a video that helps you with investing in healthcare stocks that also have dividends.

UnitedHealth

What is it?

You want diversification? UnitedHealth is the stock for you. It has four different divisions that all offers different products.

The UnitedHealthcare division offers all manner of health insurance products, from consumers to employers to people age 50 and older, and Children’s Health Insurance Program plans.

The OptumHealth division is best described as a user-facing infrastructure provider, which provides access to networks of providers, health management services, and financial services.

The OptumInsight segment is the tech side of the company, providing software and information products to the health care industry.

OptumRx provides pharmacy care services and programs.

What makes it a cheap stock?

Using both acquisitions and organic operations, UnitedHealth is now a massive national provider of all kinds of healthcare services. It has a network of over a million doctors and more than 6,000 hospitals and other facilities.

UnitedHealth built strongly on the Obamacare mandate. Despite the mandate being removed by an act of Congress, UnitedHealth still has seen exploding profits and a very reasonable valuation considering its growth.

$5.8 billion in net income in 2015, popped to $7 billion in 2916, and then exploded to $10.56 billion last year. In the past twelve months, it hit $12.5 billion.

With a P/E ratio of 17, earnings growth of 20%, a PEG ratio of 0.85 is actually well below the median PEG ratio the stock has traded at over the past ten years, making UnitedHealth one of the cheapest healthcare stocks in the market…that’s also experiencing strong growth.

Ventas

What is it?

Ventas is a change of pace for healthcare selections. It’s a real estate investment trust that leases space to healthcare providers. That gives my three selections diversification in the sector.

Ventas has about 1,200 properties spread across North America and the UK, including senior housing communities, medical office buildings, life science centers, rehab facilities, and skilled nursing facilities. It also handles a la carte management, leasing, marketing, facility development and advisory services to U.S. hospitals.

Here’s the beauty of Ventas. Healthcare tenants usually sign long-term leases. Meanwhile, there’s low turnover, and the revenue is reliable because healthcare is always in need.

What makes it a cheap stock?

Diversification in Ventas’ portfolio is key, with about 40% of assets in Senior Housing, 32% in triple-net leases, and 28% in medical offices.

Ventas stock has been selling off, which we love, because investors are looking too closely at net operating income, and that it has been trailing off.

What they’re missing is that new senior housing starts are slowing. That’s good news because it means less supply, which means higher demand for Ventas properties. Then net operating income as well as occupancy rates will perk back up.

Ventas stock is nearly 33% off its all time high, and on the lower end of its historical PEG ratio range.

It’s also a leader in the healthcare REIT field, not only because of its 1200 properties but exceptional management that has navigated a very uncertain healthcare real estate market.

Vanguard Health Care Fund

What is it?

I’m cheating a little because this isn’t a stock but a mutual fund. It’s also one of the best long-term performers in the mutual fund universe. The fund describes itself perfectly:

“Biopharmaceutical innovation, an aging population, and growth from developing markets make the health care sector an attractive longer-term investment. Offsetting these powerful tailwinds is the issue of the affordability of health care. It’s more crucial than ever that we stay true to our disciplined investment process and seek high-quality health care companies at a lower cost.”

What makes it a cheap stock?

The fund carries 75 holdings, many of which you have heard of over the years, with a 45% concentration in pharmaceuticals. Since its 1984 inception, it has returned a remarkable 16.48% on an average annual basis. Despite its many advantages, Vanguard keeps the expense ratio at a very low 0.37%.

But here’s the most important metric regarding VGHCX: Its risk profile is excellent compared to most of the rest of the market. Over the past 15 years, it has an average annual return of 12% with a standard deviation of 12.

That means in any given year, there is a 95% certainty that it will return between -12% and +36%.

That’s right. Even a concentrated sector fund has better risk metrics than the S&P 500, which has a 15-year return of 9.8% with a standard deviation of 13.22, meaning in any given year it has a 95% certainty of delivering a return between -16.6% and 36.24%.