Johnson & Johnson (NYSE:JNJ) is one of the all-time great blue chip growth and income investments. JNJ stock has rallied approximately 7,000% over the past 40 years, and that figure doesn’t even factor in dividends. It is easily one of the best healthcare stocks on the market, but are there others that may take the throne?
Long story short, investors that bought and held JNJ stock over the decades have enjoyed life-changing returns. While Johnson & Johnson continues to be a fine investment, it is now a huge and mature company that is moving at a slower pace and is no longer a high growth pick.
The question is which smaller healthcare stocks could deliver jaw-dropping returns in the years and decades to come. Here are three of the most promising candidates.
Healthcare Stocks to Buy: Charles River Laboratories (CRL)
Lab rats might not sound like the basis of a tremendous business. And yet, for Boston’s Charles River Laboratories (NYSE:CRL), it has built a healthcare giant based on lab animals.
The company provides the lab specimens, such as mice, rats, and monkeys, that are vital to clinical biotech trials. In recent years, Charles River has branched out. It offers software and consulting services to biotech companies along with clinical research functions.
All told, Charles River was involved in the development of an astounding 80% of all drugs which received FDA approval over the past few years. In effect, Charles River has a monopoly on key pieces of the drug development pipeline and gets a chunk of revenue off of almost every pharmaceutical drug which will ultimately enter the marketplace.
Charles River shares slumped over the past two years as COVID-19 related testing and development revenues faded away. However, the company is back on the upswing; it just delivered a strong earnings report and the company’s outlook is improving. Once pandemic-related effects are behind it, the company should return to its usual double-digits compounded earnings growth. Meanwhile, shares at still at an attractive 22 forward P/E multiple today.
ClearPoint Neuro (CLPT)
ClearPoint Neuro (NASDAQ:CLPT) is a small healthcare company focused on improving brain treatments. Specifically, it has the SmartFlow Cannula system which allows medical professionals to deliver drug therapies directly into the brain, bypassing the blood-brain barrier. This potentially has a wide range of clinical applications.
The SmartFlow Cannula system already has significant commercial traction with more than 5,000 units sold to-date.
For example, PTC Therapeutics’ (NASDAQ:PTCT) Upstaza, which treats AADC deficiency, received approval in the EU and the United Kingdom in 2022. That makes it the first approved gene therapy to be injected directly into the brain, and it uses ClearPoint’s proprietary delivery technology.
What makes ClearPoint compelling is its small size. The company has a sub-$200 million market cap and generates just $24 million or so annually in revenues today. It’s not hard to see those numbers growing tremendously in coming years when more drugs get approval using ClearPoint’s delivery mechanism.
Evotec (EVO)
Evotec (NASDAQ:EVO) is a German company in the life sciences space. Specifically, it operates as a drug discovery company that helps with development of new clinical products and therapies.
Evotec has partnerships with many of the world’s leading pharmaceutical companies and its pipeline covers a wide range of diseases and clinical targets.
Arguably the most compelling part of the company’s model is its dual revenue stream. It earns money from doing drug development work for its larger partners. It also earns royalties on successful drugs which go to market having used research support from Evotec. This should, over the years, allow the company to build a diversified royalty portfolio across the pharmaceutical industry.
Evotec has already validated its business model, growing revenues from $425 million in 2018 to an estimated $1.0 billion for 2024. Yet, after a recent sell-off, Evotec has a market capitalization of just $2.6 billion. That figure could go way higher in the years to come as the company builds out its royalty platform. If you are looking for great healthcare stocks, start here.
On the date of publication, Ian Bezek held a long position in JNJ and CRL stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
