2 healthcare stocks that could outperform the FTSE 100 index

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2 healthcare stocks that could outperform the FTSE 100 index

An increasingly uncertain global economic outlook could make the healthcare sector more attractive. After all, it has historically been less positively correlated to the performance of the economy than many other industries. It could therefore provide a degree of defensive appeal, while also offering long-term growth potential.

Indeed, long-term trends such as world population growth and an ageing population may lead to rising demand for healthcare-related products and services. As a result, FTSE 100 stocks such as AstraZeneca (LON: AZN) and Smith & Nephew (LON: SN) could deliver index-beating share price performances in the coming years.

AstraZeneca

AstraZeneca’s share price has gained 16% since the start of the year, versus a 4% decline for the FTSE 100. Its latest quarterly update showed that the pharmaceutical company is delivering strong growth, with revenue up 60% and core earnings rising by 20% versus the same period of the previous year.

Of course, the firm’s financial performance has been boosted by its acquisition of rare diseases specialist Alexion. Further growth is expected, with AstraZeneca guiding investors to a high-teens percentage rise in sales and a mid-to-high twenties percentage increase in core earnings for the full year. Should these figures be met, they could be significantly stronger than the performance of most FTSE 100 companies at a time when rising interest rates are set to prompt a slowdown in economic growth.

The company’s focus on noncommunicable diseases such as cancer means it is well placed to benefit from demographic changes including a growing and ageing population. Its exposure to emerging markets may prove to be a significant long-term growth catalyst, while an improving pipeline may also contribute positively to performance.

Trading on a forward price-to-earnings ratio of around 18.4, the AstraZeneca share price is clearly not cheap compared to other FTSE 100 stocks. But its long-term growth potential and defensive appeal in a period of heightened volatility mean that is merits a premium valuation.

Smith & Nephew

In contrast to AstraZeneca’s recent performance, Smith & Nephew’s share price has experienced a challenging year-to-date. It is down by 8%, as Covid-19 uncertainty has continued to affect its recent financial performance.

Indeed, the orthopedic and advanced wound management specialist reported a relatively modest 5.9% rise in underlying sales in the first quarter of the year as its performance was negatively impacted by the emergence of Omicron. However, it also experienced a recovery in elective surgery volumes in established markets as the quarter progressed. As the pandemic abates, this trend could persist and act as a catalyst on its financial performance.

Encouragingly, the firm’s emerging market revenue increased by 14.3% in the first quarter of the year. It could provide a long-term growth opportunity, while the aforementioned global demographic trends may lead to rising demand for its products and services.

Smith & Nephew’s shares trade on a forward price-to-earnings ratio of 17.8. While this is relatively high for a company that continues to face an uncertain near-term future due to Covid-19, its long-term prospects and recovery potential as the threat of the pandemic recedes mean it could produce FTSE 100-beating performance.


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