3 Top Healthcare Stocks to Buy in October

Healthcare stocks have lagged the broader stock market over the past year. Political tensions following the slaying of an insurance executive and policy uncertainty following the transition to the Trump administration have weighed heavily on the healthcare sector as a whole.

But if there is one thing people can count on, it is that healthcare will remain a core pillar of the economy. People continually require care and medicine, and innovation drives the development of better treatments that improve patient outcomes.

The sector's short-term underperformance could present an opportunity for long-term investors to buy shares of the industry's blue chip stocks.

Here are three outstanding healthcare stocks to consider buying in October.

Image source: Novo Nordisk.

1. Novo Nordisk

Weight loss drugs have taken the world by storm, but Novo Nordisk (NYSE: NVO) hasn't enjoyed the success one would expect from a company that sells two of the leading GLP-1 agonist products, Ozempic and Wegovy. Shares have fallen by 50% over the past year, primarily due to competition from compounding pharmacies that sell customized versions of the drugs to circumvent patent protections.

The noise became loud enough that Novo Nordisk changed its CEO. Since then, the company seems to be taking a more aggressive stance against compounding, though these products remain on the market to date. Novo Nordisk is preparing to launch an oral tablet version of Wegovy. Assuming it receives final regulatory approval, it would potentially help Novo Nordisk recapture market share from patients who prefer a tablet over an injected product.

Novo Nordisk is trading at a price-to-earnings (P/E) ratio of just 16, near its decade lows. That reflects considerable pessimism, especially since the weight loss drug market is poised to grow from $15 billion in 2024 to an estimated $150 billion by 2035. Novo Nordisk is a table-pounding buy for investors who believe the diabetes and weight loss drug specialist can overcome its recent adversity.

2. Danaher

Companies need the proper tools to create new and improved healthcare treatments. Danaher (NYSE: DHR) operates within this space. The company sells products that help healthcare companies discover and develop new drugs and medicines. Danaher is known for acquiring companies and integrating them into its ecosystem. In all, the company currently owns over 15 businesses that operate across biotechnology, diagnostics, and life sciences.

Mergers and acquisitions can be risky because they can destroy shareholder value if the companies involved do not execute them well. However, Danaher has demonstrated that its ecosystem is effective. The stock has returned over 35,000% since 1990, outperforming the S&P 500 index by a wide margin over the years.

Excellence often doesn't come on the cheap. The stock's forward P/E of 26 is somewhat high for a business that analysts estimate will grow earnings by 9% annually over the next three to five years. There is a famous expression that it's better to buy outstanding companies at fair prices than to pay low prices for lousy ones. Danaher's valuation is reasonable enough that long-term investors can still do well as long as Danaher remains an excellent business.

3. UnitedHealth Group

Insurance and healthcare services giant UnitedHealth Group (NYSE: UNH) has been at the center of a political firestorm over healthcare in the United States. Since the slaying of the company's insurance CEO almost a year ago, additional controversy has arisen, including investigations into serious allegations surrounding UnitedHealth's business practices.

Fear and uncertainty often weigh on stocks, and this has been no exception. Shares of UnitedHealth Group have declined by over 40% over the past year, although the stock has since rebounded from its lows. Investors should consider the regulatory risks facing one of the healthcare industry's largest and most powerful players. Major reform could turn UnitedHealth Group's business model on its head.

At the same time, healthcare in the United States has been politically volatile for years, and such industry-defining reforms haven't occurred. The stock trades at just 15 times its earnings today, near its decade lows. Investors who are comfortable with the risks could enjoy a lucrative rebound if UnitedHealth Group can emerge from its current investigations and the regulatory environment relatively unscathed.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Danaher. The Motley Fool recommends Novo Nordisk and UnitedHealth Group. The Motley Fool has a disclosure policy.