Viatris, Organon, and 6 Other Defensive Healthcare Plays as Healthcare Stocks Stumble

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It has been a rough year for healthcare investors.

The

Health Care Select Sector SPDR Fund
(ticker: XLV), an exchange-traded fund that tracks healthcare stocks in the S&P 500, is down 1.7%, while the

S&P 500

itself is up 7.7%. The

S&P 500 Pharmaceuticals index
is down 5.2%, while

SPDR S&P Biotech ETF
(XBI) is down 2%.

Even against this tough backdrop, a Barron’s stock screen found some interesting defensive picks, led by generic drugmaker Viatris (VTRS) and Organon (OGN), a women’s health-focused biopharma that also sells biosimilars. Both stocks have been beat up this year, and may be poised for a rebound.

In 2022, healthcare stocks were looking strong with the exception of the biotech ETF, which fell 26%. The Health Care Select Sector SPDR Fund slid a mere 3.6% even as the S&P 500 tumbled 19% in 2022. The pharmaceutical index was actually up on the year, climbing 5.8%.

While analysts hypothesize about what is going wrong this year, the question for investors is whether any defensive plays remain in the healthcare space. To answer this question, we screened the healthcare stocks in the S&P 500 for names with a dividend yield of more than 1%, and with an average analyst target price at least 15% over its recent price.

Company / Ticker	Recent price	Dividend yield	Average Target Price	Implied Gain
Viatris / VTRS	$9.82	4.8%	$12.89	31.3%
Organon / OGN	23.83	4.7	31.89	33.8
Pfizer / PFE	40.65	3.9	49.47	21.7
Cigna Group / CI	258.03	1.8	351.95	36.4
Abbott Laboratories / ABT	104.11	1.8	120.97	16.2
UnitedHealth Group / UNH	501.63	1.3	595.57	18.7
Laboratory Corporation of America Holdings / LH	230.14	1.2	285.36	24.0
Elevance Health / ELV	480.94	1.1	574.66	19.5

Source: FactSet

A stock’s dividend yield reflects the ratio between its share price and its annual dividend; higher dividends are attractive in an environment where share price growth is less likely. Average analyst target prices, meanwhile, reflect the Wall Street consensus of where a stock might be headed; if a stock trades well above its average target price, investment bank analysts generally like it.

Some of the sector’s biggest names passed our screen, likely a reflection of the higher dividends paid by the larger companies. Whether these stocks actually represent defensive plays is up for debate. So far this year, stocks that passed the screen have all seen their share prices fall.

Viatris and Organon, which spun out of

Pfizer

(PFE) and

Merck

(MRK), respectively, had both the highest dividend yields and average target prices the farthest above their recent prices.

Viatris, which has a dividend yield of 4.8%, has an average target price 31.3% above its recent price. Organon, with a 4.7% dividend yield, has an average target price 34% over its recent price.

Both stocks are underperforming the sector so far this year. Viatris shares are down 12%, while Organon shares are down 16%.

Other stocks to pass the screen include the drugmaker Pfizer, the health insurers

Cigna Group

(CI),

UnitedHealth Group

(UNH),

Elevance Health

(ELV), the medical device maker

Abbott Laboratories

(ABT), and the diagnostic test company

Laboratory Corporation of America Holdings

(LH).

Write to Josh Nathan-Kazis at [email protected]