I've long viewed healthcare as one of the best sectors for long-term investors because everybody requires healthcare products and services sooner or later. With aging populations in the U.S. and other major countries, the demand will almost certainly increase over the next decade and beyond.
However, some stocks in this sector are better than others. Here are two healthcare stocks to buy hand over fist and one to avoid.
Buy BioNTech
In the third quarter of 2021, BioNTech (NASDAQ: BNTX) raked in revenue of over 6 billion euros (around $6.9 billion based on the then-current exchange rate). Fast forward to Q3 of 2024, and BioNTech's revenue was only 1.24 billion euros (roughly $1.3 billion), due to the steep decline in demand for the COVID-19 vaccine the company markets with its partner Pfizer.
With sinking revenue (and profits), why is BioNTech a stock to buy hand over fist? For one thing, the company's COVID-19 revenue has rebounded, jumping 39% year over year in Q3. More importantly, though, the market isn't giving nearly enough credit to BioNTech's promising pipeline.
BioNTech plans to launch its first cancer therapy in 2026 and hopes to win regulatory approvals for 10 cancer indications by 2030. It's making solid progress toward these goals, with two cancer programs in late-stage testing and 12 in phase 2 clinical trials.
However, I don't think investors are valuing BioNTech's pipeline nearly as highly as they should. The company's enterprise value of around $11.8 billion is only 4.5 times the expected 2024 sales. The average biotech stock trades at more than 7.7 times sales. Even if BioNTech has little or no pipeline successes (which I view as unlikely), the stock is a bargain at its current price.
Buy TransMedics Group
TransMedics Group's (NASDAQ: TMDX) share price had more than doubled year to date by early August. Since then, though, the stock has given up all of those gains and then some after missing Q3 revenue and earnings estimates. However, I still think this innovative disruptor is a great pick for long-term investors.
To understand TransMedics' growth potential, we have to first look at the dynamics of the organ transplantation market. The current standard for transporting donor organs is cold storage, but the main problem with this approach is that far too few organs make it to their intended recipients.
Enter TransMedics' Organ Care System (OCS). The company's OCS technology keeps donor organs alive until they're transplanted. OCS is the only warm perfusion technology approved by the U.S. Food and Drug Administration for multiple organs -- hearts, lungs, and livers.
TransMedics is addressing historical logistical challenges for organ transplants with its own aviation fleet. The company is also working to obtain regulatory approvals for OCS in key European countries. I view this stock as a great pick to buy on the pullback.
Avoid Walgreens Boots Alliance
The stock chart for Walgreens Boots Alliance (NASDAQ: WBA) looks downright horrible. Shares of the pharmacy services company have plunged this year and are down around 90% from the peak set in 2015.
Walgreens might appear to be dirt cheap after this massive sell-off as its shares trade at only 5.5 times forward earnings. However, the stock could be a classic value trap.
One of Walgreens' major problems isn't going away. Competition in the retail pharmacy market remains intense, especially with Amazon and Walmart flexing their formidable muscles. The company also must deal with its significant debt load of over $33.8 billion.
What about the possibility Walgreens could be acquired? The company is reportedly in talks with private equity firm Sycamore Partners about a potential deal. However, I'd be leery of buying Walgreens stock solely because an acquisition could be in the works. Rumored deals often don't pan out.
Even without an acquisition in the near term, I think Walgreens Boots Alliance can turn things around. But investors may be better off staying on the sidelines with this beaten-down stock for now.
Should you invest $1,000 in BioNTech Se right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Amazon and Pfizer. The Motley Fool has positions in and recommends Amazon, Pfizer, TransMedics Group, and Walmart. The Motley Fool recommends BioNTech Se. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
