Wellness Stocks to Invest in Now

17 11 minutes read

In May, in a first-of-its-kind procedure, doctors cured a newborn suffering from a rare and often fatal genetic disorder using a groundbreaking, personalized gene-editing therapy.

The process, called CRISPR, was decades in the making, but it isn’t the only medical breakthrough that is saving or extending lives these days.

In addition to gene editing, there are gene and cell therapies, antibody-based treatments, and RNA medicine (the science behind the development of COVID vaccines), among others.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.

Profit and prosper with the best of expert advice – straight to your e-mail.

“The number of tools being used has exploded in the past few years, and it’s leading to scientific findings that are creating clinical benefits for patients,” says Zach Baca, a biotechnology analyst at T. Rowe Price. “We’re actually able to manipulate biology to extend and improve the quality of life. This is what people will remember for our time.”

And it’s all happening at the very moment that people have become more health-conscious, thanks in part to the pandemic.

Even the new administration is tapping into the zeitgeist (and promoting its public health policies) with its slogan, “Make America Healthy Again.”

But regardless of politics, the focus on living healthy for longer is intensifying, and that’s fueling growth in a so-called longevity economy.

A good prognosis for growth

UBS Global Wealth Management projects that the longevity market could increase to $8 trillion by 2040, from $5.3 trillion in 2024.

Says Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, “While health care companies are among the biggest beneficiaries in the longevity value chain at present, we also expect a growing number of beneficiaries in the consumer, financial services and real estate sectors.”

Marcelli adds that companies that fit within the longevity theme can compose up to 5% of an investor’s allocation to global stocks. “Investing in the longevity value chain may provide potential growth and diversification benefits, in our view.”

For now, we’re focusing on health care firms, and there are some caveats to consider. The sector is dealing with a barrage of potential policy changes to research funding, Medicare and Medicaid, plus the possibility of tariffs on certain drugs for the first time in decades.

These changes could impact revenues, earnings and, ultimately, the stock prices of a host of health firms; by how much, for now, is an unknown.

But valuations are key to stock returns, too, and “here, the sector has an offensive advantage,” says Dan Lyons, a health and biotech portfolio manager at fund firm Janus Henderson.

In late May, health care stocks traded at a 25% discount to the S&P 500 Index, based on year-ahead price-to-earnings (P/E) multiples. That’s far below the sector’s long-term average of a 4% premium, says Lyons.

Also, bear in mind that longevity is a long-term theme. Much of the cutting-edge innovation is happening at emerging companies that are not yet profitable, and the path to meaningful profitability could be a rocky one.

Aging is one of the “final frontiers of medicine,” says Dr. David Song, who runs three actively managed health-related exchange-traded funds (ETFs) for the fund company Tema.

“There are many great opportunities for a long-term investor, because the science is there. And it’s only going to get better over time,” he says. “If there’s excitement, the animal spirits will return. But right now, there are no animal spirits – and that’s the opportunity.”

To tap into the longevity economy, we’ve highlighted eight companies that are extending healthy lifespans in various ways, from disease prevention to early diagnosis to cancer treatments that deliver better survival rates. The group includes a mix of established firms with steady businesses as well as a few fledglings. All returns and data are through May 31, unless otherwise noted.

Tackling obesity

Weight-loss drugs are a cornerstone of the longevity economy. After all, obesity is a harbinger of some 200 chronic diseases, including diabetes, stroke, kidney disease and heart failure. It cuts a person’s chance of living past age 70 by 50%.

According to the World Health Organization, in 2022, 2.5 billion adults age 18 and older were overweight, including 890 million adults who were obese.

“These weight-loss drugs could be an absolute game-changer” in terms of longevity, according to Lazard portfolio managers Steven Wreford and Sarbjit Nahal, who comanage with two others the Lazard Equity Megatrends ETF.

Of course, the weight-loss drug companies are obvious wellness plays and have been for a couple of years. But they’ve still got good growth ahead of them, says Rebecca Sykes, manager of Vanguard Health Care Fund.

GLP-1 drugs, named after the appetite-suppressing, naturally occurring hormone that they mimic, have sold well in the U.S., and adoption is starting to pick up overseas.

Total worldwide sales, Morgan Stanley says, could top $150 billion by 2035, up from nearly $50 billion in 2024.

More important, however, is that drugmakers are testing GLP-1 drugs as treatments for a host of other ailments, including heart, kidney and liver disease, Alzheimer’s, and irritable bowel syndrome.

These drugs may one day be the “standard of care” – the widely accepted treatment – for a range of other ailments, says Lazard’s Wreford.

Most investors have heard of Eli Lilly (LLY) and Novo Nordisk (NVO) and their best-selling injectable GLP-1 drugs.

Competition is fierce and getting fiercer: Other drugmakers are developing their own versions. But Lilly has an edge for now because it may get approval as soon as next year for a much easier-to-take daily weight-loss pill, which could drive up adoption even more.

Shares in Lilly and Novo are down over the past 12 months – Lilly by 9% and Novo by 46%.

At $738, Lilly shares trade at 30 times expected earnings for the year ahead, a premium to its 10-year median price-earnings ratio of 23, according to Zacks Investment Research. But analysts expect 20% average annual growth in earnings over each of the next three years.

Novo shares are a bargain, trading at 18 times earnings estimates. The catch is it’s a wobbly time to invest – in May, the firm abruptly ousted its chief executive. But analysts project 29% average annual earnings growth over each of the next three years.

(Novo is a member of the Kiplinger ESG 20, stocks we like that stand out on environmental, social or governance measures.)

Catching disease early

“The secret to wellness is early diagnosis,” says Mike Taylor, manager of the Simplify Health Care ETF.

Several companies are working on developing a single blood test that can detect multiple types of cancer, which would be a giant leap forward in preventing a leading cause of death worldwide.

“Treatments almost always work better if the cancer is caught early,” says Vanguard’s Sykes.

UBS Securities analyst Dan Leonard recently said precision-oncology company Guardant Health (GH) had the “most compelling” multi-cancer-detection blood test of the companies that UBS covers.

Guardant’s approved blood test for colorectal cancer, called Shield, has been on the market since last summer.

And the firm is now testing Shield to detect 10 other tumor types, including aggressive ones such as lung, ovarian and pancreatic cancers. Recent study results, presented at an April meeting for the American Association for Cancer Research, were highly encouraging.

Meanwhile, the firm’s other blood-based tests, Guardant360 and Reveal, are driving revenue growth. Those tests detect tumor DNA to help guide treatment or to find residual or recurrent disease in patients.

Guardant shares have climbed 50% over the past 12 months. The company isn’t profitable yet, though losses are shrinking, and analysts expect revenues to jump 20% in 2025 and 21% in 2026.

GH is the “market leader” in an area of cancer testing that is “accelerating and evolving rapidly,” write analysts at investment firm Stifel, who recommend the stock. “We believe the company is set to have a strong 2025.”

Faster diagnoses

Artificial intelligence is accelerating the diagnosis process by up to 50%, says Lazard’s Nahal. It’s also aiding drug development, cutting in half the time it takes to get a drug into clinical trials, says Arelis Agosto, director of product research and strategy at Global X ETFs.

Tempus AI (TEM) uses AI to tap into its massive library of clinical and molecular oncology data, and it connects scientists, physicians, diagnostic labs and health care institutions together on its platform.

It’s a nascent business but growing fast. The firm’s technology provides genomic-based diagnostics, profiling and testing that leverages AI machine-learning algorithms to deliver accurate information with each new test.

Another business segment uses AI to help drug companies more quickly find appropriate test patients for clinical trials, which could lead to faster drug approvals.

“Tempus AI has created an unmatched, 200-petabyte, multimodal dataset that helps oncologists provide better care for patients and helps life sciences companies to create more-targeted therapies to drive better outcomes,” says Ryan MacDonald, an analyst at the investment bank Needham & Co., which specializes in small, growing companies.

He rates the stock a Buy. The company is “nicely insulated” from tariffs and regulatory changes, he adds, in part because the new administration views technology innovation and AI favorably.

Some caution is required: The stock has only been trading since June 2024 and has gained 57% since then. And it’s not profitable, though losses are projected to shrink this year and next. Analysts also expect revenue to jump 80% this year and 25% next year.

Wearable devices

Patches with sensors help individuals stay on top of their health. Some of these devices help monitor existing conditions, but they can also detect potential problems early and encourage healthier behavior, both of which can lead to better health outcomes and longer lives.

The Zio suite of wearable electrocardiogram monitors from iRhythm Technologies (IRCT), for instance, is improving the way doctors diagnose and treat patients with arrhythmia, an irregular or abnormal heartbeat rhythm that can lead to a stroke, heart failure or a heart attack. (Heart disease is the leading cause of death.)

A Zio patch, worn on the chest, records 1.5 million heartbeats for each patient during a single-wear period of 14 days.

It is two times more likely to result in a specified arrhythmia diagnosis compared with a standard heart-monitoring device, which has to be worn around the neck on a lanyard and records heart activity for only one or two days, according to the firm.

But iRhythm doesn’t just make and sell the device; an in-house team of certified cardiographic technicians leverage a stockpile of data and proprietary AI algorithms to advise doctors how best to treat their patients.

Legacy Zio versions, called the Zio and the Zio XT, store data in the device; patients mail it to iRhythm after the wear period to be analyzed.

The latest generation, Zio AT, uses Bluetooth technology to send readouts to iRhythm’s clinical team in real time, allowing a doctor to provide actionable notifications to the patient during the wear period.

“We believe iRhythm can generate double-digit revenue growth over the next few years, driven by Zio XT and Zio AT volumes,” says Needham analyst David Saxon. That will help the company narrow its losses, which are on the wane.

The firm says it sees a path to positive free cash flow (money left after operational expenses and spending on long-term assets) by 2026. In early May, Saxon, who rates the stock a Buy, raised his 12-month price target on iRhythm shares to $151.

DexCom (DXCM) is best known for its skin patches that continuously monitor glucose levels in real time; it plays a big role in the battle against diabesity (a portmanteau of diabetes and obesity).

At the end of 2024, 2.8 to 2.9 million customers used DexCom products globally; for context, some 589 million adults are living with diabetes worldwide.

Later this year, the firm will launch its newest version, the G7, which has a 15-day wearing period, the longest biosensor wear time on the market. Morningstar analyst Debbie S. Wang says DexCom’s monitors are “measurably better than competitive products.”

DexCom’s devices can also encourage healthier behavior. Its patches allow users to understand how their physical activity and the specific food they consume (there are features that allow meal and medication logging) affect their glucose levels in real time.

The company’s new over-the-counter glucose monitor, Stelo, was designed for prediabetes and type 2 diabetes patients who do not take insulin, but the firm said recently that Stelo is winning over some health and wellness buffs, too.

The device can be integrated with the Oura Ring, a smart ring that tracks heart rates, respiration rates, sleep stages, physical activity and more.

“We’re focused on expanding Stelo’s use cases well beyond diabetes and prediabetes,” DexCom’s chief operating officer said on a recent call with Wall Street analysts.

A new deal to sell Stelo on Amazon.com may boost sales, too. That’s one reason William Blair analyst Margaret Kaczor Andrew rates the stock Outperform.

Shares are still struggling to recover from disappointing results in 2024; the stock is down 28% over the past 12 months. Tariff risks are a small concern, too.

But Blair’s Kaczor Andrew says “DexCom is well positioned for long-term growth,” with an expanding portfolio of products and increasing market share in type 2 diabetes and beyond.

Analysts expect robust earnings growth: $2.02 per share this year, up from $1.46 in 2024, and $2.51 per share in 2026.

Better survival rates

Cancer is still the second-leading cause of death globally. But a wave of discoveries has brought new modes of therapy that didn’t exist 10 years ago. These innovative treatment approaches are “extending life and improving the quality of life” of cancer patients, says Vanguard’s Sykes.

One such method involves antibody-drug conjugates, or ADCs. Sometimes called smart chemo, the ADC process turns antibodies – proteins produced by your immune system – into a guidance system “much like a smart bomb’s,” says T. Rowe Price’s Baca, to home in on and destroy cancer cells while sparing healthy cells.

Traditional chemo attacks all cells, both healthy and cancerous. “The ultimate goal would be for ADCs to replace traditional chemotherapy, which would culminate in a considerable drop in cancer mortality,” according to a 2024 report by Morgan Stanley analysts. “We believe the future of ADCs is now and that smart chemotherapy could become one of the biggest growth areas in biopharmaceuticals, with revenue reaching $55 billion in the U.S. over the next 15 years.”

AstraZeneca (AZN) has received multiple product approvals in recent months, including treatments targeting lung cancer, breast cancer and lymphoma. Its ADC-based treatment, Enhertu (developed with partner Daiichi Sankyo), is approved in the U.S. and Europe to treat a specific type of metastatic breast cancer.

In trial studies, according to the National Cancer Institute, people with metastatic HER2-Low breast cancer treated with Enhertu lived nearly twice as long without their cancer growing and six months longer overall than those treated with standard chemotherapy.

Enhertu is “more efficacious and frequently better tolerated” than the leading competitor, says Simplify’s Taylor, and is quickly becoming the standard of care for metastatic breast cancer.

Although Enhertu has been driving revenue at AstraZeneca, a “rich late-stage” pipeline has the potential to add $17.6 billion to sales over the next five years, lifting the firm’s total revenue to $74.4 billion, up from $54 billion in 2024, says UBS analyst Matthew Weston, who rates the stock a Buy.

Shares in the Anglo-Swedish biopharmaceutical, accessible via American depositary receipts in the U.S., currently trade at 16 times earnings. That’s a discount to the broad market, but it’s in line with the average big pharma company. Analysts expect 10% earnings growth this year and 12% next year.

Finally, a quick nod to AbbVie (ABBV), a member of the Kiplinger Dividend 15, our favorite dividend-paying stocks. Its ovarian cancer ADC treatment, Elahere (added with its 2024 acquisition of ImmunoGen), is another treatment that’s extending lives.

Approved for use in the U.S. and Europe in 2024, it is extending the life span for patients with late-stage ovarian cancer by 30%. “These patients were out of options, and this therapy can now offer them significant benefits,” says Janus Henderson’s Lyons.

Shares in AbbVie trade at 15 times earnings estimates, and analysts expect 21% growth in profits in 2025 and 14% in 2026.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Source link