3 Top-Rated Healthcare Stocks With 20% to 35% Upside Potential

Since the bull market kicked off in October 2022, a few big artificial intelligence (AI) players have led the charge higher. But the game is changing, thanks to a better-than-expected June inflation report, which sparked expectations for a Fed rate cut - and a more favorable macro backdrop for small-caps, dividend-paying stocks, and other recent stock market laggards. 

With investors rotating out of Big Tech leaders and market breadth improving, some overlooked stocks are getting their moment to shine. Considering the healthcare industry’s resilient nature and steady demand, investors looking to diversify their portfolios might want to consider these three “Strong Buy”-rated stocks, with analysts predicting 20% upside potential or more for these picks.

Healthcare Stock #1: Zoetis 

New Jersey-based Zoetis Inc. (ZTS) is a leading animal health company. For over 70 years, Zoetis has pioneered methods to predict, prevent, detect, and treat animal illnesses. The company remains committed to supporting those who raise and care for animals globally, including veterinarians, pet owners, livestock farmers, and ranchers. Zoetis' premier portfolio and pipeline of medicines, vaccines, diagnostics, and technologies make a significant impact in more than 100 countries.

Valued at about $82 billion by market cap, Zoetis' shares have gained just 3.2% over the past 52 weeks, and the stock is off more than 10% on a YTD basis. Over the past three months, though, the stock is up 20.4%, outpacing the broader S&P 500 Index’s ($SPX) 10.9% gain and S&P 500 Healthcare Sector SPDR’s (XLV) return of 6% during the same time frame. 

The company has a five-year streak of consecutive dividend increases. On May 22, Zoetis revealed a quarterly dividend of $0.432 per share, set to be distributed to its shareholders on Sept. 4. Its annualized dividend of $1.73 translates to a 0.97% dividend yield. Plus, with a conservative payout ratio of 28.77%, there's plenty of potential for future dividend hikes. 

From a valuation standpoint, ZTS stock is priced at 31.61 times forward earnings and 9.72 times sales, lower than its own five-year averages of 36.20x and 10.65x, respectively.

Following its better-than-expected Q1 earnings results ahead of the bell on May 2, shares of Zoetis jumped 5.5% on the day. The company posted revenue of $2.2 billion, reflecting a solid 10% improvement from the year-ago quarter, fueled by strong performance across its U.S. and international segments.

U.S. revenue soared to $1.2 billion, a remarkable 16% annual increase. The international segment posted $1 billion in revenue, reflecting a solid 3% year-over-year growth. During the quarter, the company earned $1.38 per share on an adjusted basis, marking a 5.3% annual jump. 

Commenting on the Q1 performance, CEO Kristin Peck noted, “Our companion animal portfolio grew an impressive 20% operationally, fueled by our innovative franchises in pet parasiticides, osteoarthritis pain, and dermatology."

For fiscal 2024, management projects revenue to range between $9.1 billion and $9.2 billion. Adjusted net income is expected to be between $2.6 billion and $2.7 billion, while adjusted EPS is forecast to land between $5.71 and $5.81. The company is expected to announce its fiscal Q2 earnings results on Tuesday, Aug. 6. 

Analysts tracking Zoetis project the company’s profit to climb 8.3% year over year to $5.76 in fiscal 2024, and rise another 9.7% to $6.32 per share in fiscal 2025. 

ZTS stock has a consensus “Strong Buy” rating overall. Of the 13 analysts covering the stock, 12 suggest a “Strong Buy,” and the remaining one gives a “Moderate Buy” rating.  

The average analyst price target of $213.75 indicates a potential upside of 20.5% from the current price levels. The Street-high price target of $248 suggests that ZTS stock could rally as much as 39.8%.

Healthcare Stock #2: Becton, Dickinson and Company 

With a market cap of about $67 billion, New Jersey-based Becton, Dickinson, and Company (BDX) is one of the world's largest medical technology companies. The company is transforming healthcare by advancing medical discovery, diagnostics, and care delivery through three dynamic segments: BD Medical, BD Life Sciences, and BD Interventional. Operating globally, BDX partners with organizations to tackle major health challenges, improve outcomes, reduce costs, increase efficiency, and expand healthcare access.

Shares of Becton Dickinson have dropped 9.6% over the past 52 weeks and 5.6% on a YTD basis. 

With a remarkable 51-year track record of consecutive dividend increases, the Dividend King is committed to rewarding its shareholders. On June 28, the company declared a quarterly dividend payment of $0.95 per share. This brings its annualized dividend to $3.80 per share, offering an attractive dividend yield of 1.62%. Plus, BDX maintains a payout ratio of 30.17%, striking a healthy balance between rewarding shareholders and pursuing growth opportunities. 

In terms of valuation, the stock is trading at 17.95 times forward earnings and 3.49 times sales, which is lower than both its industry peers and its own five-year averages. 

Becton Dickinson shares jumped 2.8% on May 2 after the company’s Q2 earnings results exceeded Wall Street’s expectations. Revenue hit $5.1 billion, marking a 4.6% year-over-year increase. Additionally, adjusted EPS soared 10.8% annually to $3.17, surpassing estimates by a 7.1% margin.

During the quarter, the company excelled across all three of its segments, with BD Interventional leading the charge. This unit, encompassing Surgery, Peripheral Intervention (PI), and Urology and Critical Care (UCC), achieved 9% annual revenue growth. BD Medical and BD Life Sciences registered 3.8% and 2.2% year-over-year revenue increases, respectively. 

Based on this strong performance, management raised its fiscal 2024 guidance. Full-year revenue is now projected to land between $20.1 billion and $20.4 billion, with organic revenue growth of 5.5% to 6.3%, adjusted for forex impacts. Adjusted EPS is projected to range between $12.82 and $13.15, reflecting a growth rate of 6.1% to 7.7%. 

BDX is slated to report its fiscal Q3 earnings results before the market opens on Thursday, Aug. 1. 

Analysts tracking Becton Dickinson expect the company’s profit to reach $13.04 per share in fiscal 2024, up 6.8% year over year, and rise another 9.1% to $14.22 per share in fiscal 2025.  

BDX stock has a consensus “Strong Buy” rating overall. Out of the 16 analysts covering the stock, 12 suggest a “Strong Buy,” one recommends a “Moderate Buy,” and the remaining three give a “Hold” rating. 

The average analyst price target of $277.57 indicates a potential upside of 20.2% from the current price levels, and the Street-high price target of $315 suggests that BDX stock could rally as much as 36.5%. 

Healthcare Stock #3: DexCom

Valued at a market cap of $44.6 billion, California-based DexCom, Inc. (DXCM) is a trailblazer in continuous glucose monitoring (CGM), revolutionizing diabetes management since 1999. The company specializes in designing and commercializing CGM systems that deliver real-time glucose readings, trend data, and alerts directly to a compact receiver, helping both patients and healthcare providers effectively manage blood glucose levels.

Shares of DexCom have shed almost 17% over the past 52 weeks, and are down 10.6% on a YTD basis. 

Priced at 64.32 times forward earnings and 12.58 times sales, the stock may not be a bargain relative to its industry peers, but DXCM is currently valued much lower than its own five-year average multiples of 133.55x and 16.47x, respectively. 

On April 25, the company announced its Q1 earnings results, which topped Wall Street’s predictions. Total revenue for the quarter skyrocketed 24.2% year over year to $921 million, exceeding forecasts by about $9.8 million. The top-line beat was fueled primarily by booming volume growth and a wave of new customers as real-time CGM gained more adoption.

DexCom’s adjusted EPS of $0.32 showed an impressive 88.2% annual growth, crushing Wall Street estimates by a solid 18.5% margin. As of March 31, the company boasted a hefty $2.9 billion in cash and marketable securities, with its revolving credit facility untouched. This strong cash cushion provides DexCom with substantial financial and strategic flexibility as it ramps up production and ventures into new markets.

During the quarter, Dexcom achieved several milestones, including receiving FDA clearance for Stelo, the first glucose biosensor for type 2 diabetes in the U.S. that doesn’t require a prescription. Additionally, the company launched the Direct-to-Watch feature for Dexcom G7 in the UK and Ireland, further expanding its innovative offerings.

For fiscal 2024, management projects revenue to range between $4.20 billion and $4.35 billion, reflecting 17% to 21% organic growth. Additionally, the company maintains its targets for a non-GAAP gross profit margin of 63% to 64%, a non-GAAP operating margin of around 20%, and an adjusted EBITDA Margin of about 29%. DexCom is scheduled to announce its fiscal Q2 earnings results after the market closes on Thursday, July 25. 

Analysts tracking DexCom foresee the company’s profit hitting $1.78 per share in fiscal 2024, up 17.1% year over year, and climbing another 24.7% to $2.22 per share in fiscal 2025. 

Overall, DXCM stock has a consensus “Strong Buy” rating. Out of the 22 analysts covering the stock, 18 suggest a “Strong Buy,” one recommends a “Moderate Buy,” and the remaining three give a “Hold” rating. 

The average analyst price target of $148.62 indicates a potential upside of nearly 35% from the current price levels. The Street-high price target of $170 suggests that DXCM could rally 54% from here.