Industry-Wide Tariffs Loom Over the Healthcare Sector. Here Are 2 Stocks That Can Weather the Storm.

Key Points

• President Trump's tariffs could erode healthcare companies' profits, but some may perform well regardless.

• Eli Lilly and Novartis have taken steps to mitigate the potential impact.

• Both drugmakers are innovative, deliver strong financial results, and have excellent dividends.

• 10 stocks we like better than Eli Lilly ›

President Donald Trump's trade policies have caused tumult on Wall Street. The president has pushed for aggressive tariffs on imported goods in an attempt to bring manufacturing jobs back to the country.

Although there were hopes that certain sectors would be spared -- including healthcare -- it turns out that won't be the case. Higher duties on imports could increase companies' costs, which would squeeze their margins and bottom lines, and meaningfully hurt their stock performance. However, even with this threat, there are still some healthcare companies worth investing in, including Eli Lilly (NYSE: LLY) and Novartis (NYSE: NVS).

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1. Eli Lilly

Eli Lilly has been expanding its U.S.-based manufacturing capacity for years, but it has recently accelerated this effort. The pharmaceutical leader has now invested, or committed to invest, $50 billion to build or update manufacturing sites in the country since 2020, about half of which it announced during the first quarter.

According to management, once it completes its ongoing projects, it will be able to manufacture 100% of medicines aimed at U.S. patients within the country while also increasing its exports. In other words, the drugmaker will be mostly insulated from the impact of Trump's tariffs.

And there are other reasons to invest in Eli Lilly. Here are three:

First, the company has demonstrated remarkable innovation in its core areas of diabetes and obesity in recent years. Its newer launches, Mounjaro and Zepbound, are already generating billions and allowing it to grow its revenue and earnings at a good rate.

In the first quarter, its top line rose 45% year over year to $12.7 billion. Net income was $2.8 billion, 23% higher than the year-ago period. Results like these should be the norm in the next five years at least.

Second, the company has an extensive pipeline. Lilly recently reported positive phase 3 results for an oral GLP-1 candidate, orforglipron. This was an important win for the company since its current GLP-1 medicines are administered subcutaneously, so orforglipron could attract some patients who want a more convenient option. And there are many other exciting candidates, even beyond diabetes and obesity care.

Third, the company is an excellent dividend stock, despite its unimpressive forward yield of 0.8%. It has increased its payout by 102.7% in the past five years. But whether you seek growth or income, Eli Lilly is a top stock to buy now and hold for a long time, despite the threat of tariffs.

2. Novartis

Novartis is following a similar blueprint to mitigate the impact of tariffs. The company announced it would invest $23 billion in the next five years to improve its U.S.-based manufacturing footprint.

Although its results may suffer somewhat from the impact of tariffs in the meantime, the company should eventually be able to handle them, assuming the tariffs continue. It's another excellent healthcare stock to consider in this environment, particularly given its strong financial results and promising prospects.

In the first quarter, net sales increased by 12% to $13.2 billion year over year. Net income was $4.5 billion, 22% higher than the year-ago period.

Some might point out that Novartis is losing U.S. patent exclusivity for its heart failure medicine Entresto this year. In the first quarter, it was still its top-selling drug, generating $2.3 billion in sales, 20% higher than the prior-year quarter.

This will be a significant loss, but management has prepared for it. Newer medicines should eventually replace Entresto, including Fabhalta, which treats paroxysmal nocturnal hemoglobinuria (a rare blood disease), and cancer drugs Scemblix and Pluvicto.

All of them first earned approval in the U.S. between 2021 and 2023. In the first quarter, Pluvicto, the best-selling of the trio, generated revenue of $371 million, a 20% year-over-year increase. Furthermore, Novartis' deep pipeline will lead to even more launches. The company currently has over 100 ongoing programs.

Lastly, Novartis is also a strong income stock. The drugmaker has increased its dividend for 28 consecutive years and currently offers a forward yield of 3.3%, significantly higher than the S&P 500's average yield of 1.3%.

It should deliver solid returns for patient investors, despite an upcoming major patent cliff and potential impacts from tariffs.

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Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.