2 Undervalued Healthcare Stocks to Buy in 2025 and Hold for Decades

Key Points

• The overall stock market keeps reaching new heights, but some of its components are having a lousy year.

• Novo Nordisk stock has lost more than half its value over the past year despite rapidly growing sales of its anti-obesity treatment.

• Healthpeak Properties' stock is down because it reduced its dividend to complete a merger last year.

• 10 stocks we like better than Novo Nordisk ›

Finding undervalued stocks isn't easy these days. The average stock price for companies in the benchmark S&P 500 index has soared to 24.8 times trailing 12-month earnings.

While the overall stock market is way up, a couple of companies in the healthcare sector aren't getting the attention they deserve. Here's a closer look at Novo Nordisk (NYSE: NVO) and Healthpeak Properties (NYSE: DOC) to see how they could soar in the years ahead.

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1. Novo Nordisk

This Denmark-headquartered company underestimated demand for its anti-obesity treatment Wegovy when it launched in the U.S. in 2021. To make matters worse, a couple of years ago, Eli Lilly launched a next-generation anti-obesity drug that reduces weight more effectively than Wegovy.

Investors noticing the loss of market share for semaglutide, the GLP-1 drug in Wegovy and Ozempic, have knocked the stock down by 68% over the past 12 months. The stock decline might seem like the business is at death's door, but this isn't the case. In fact, management expects operating profits to rise by 10% to 16% this year once adjusted for fluctuating currency exchange rates.

Its recently knocked-down price is only 13.8 times forward-looking earnings expectations, which seems way too low for shares of a company with profits that are growing by a double-digit annual percentage.

Investors probably don't need to worry that Zepbound from Eli Lilly and stronger GLP-1 drugs still in development will make semaglutide irrelevant. That's because Novo Nordisk's drug is relatively easy to tolerate. It might take a few months longer to achieve the same degree of weight loss, but this is a trade-off many patients and their physicians are comfortable with.

Recently, Novo Nordisk published some data that suggests patients on semaglutide are 57% less likely to experience a cardiovascular event like a heart attack or stroke than patients on tirzepatide, Eli Lilly's GLP-1 drug. While the study's conclusion needs to be taken with a grain of salt, it's clear that we shouldn't assume semaglutide can't maintain a significant share of the anti-obesity market.

In the US, semaglutide's patents are expected to keep biosimilar competition at bay until 2032 at the earliest. In the meantime, patient shareholders could receive heaps of dividend payments. At their beaten-down price, shares of Novo Nordisk offer a 3.1% yield. That's a big yield from a company that has more than doubled annual dividend payments since 2021.

2. Healthpeak Properties

Over the past couple of years, funding for start-up biotechnology businesses has slowed down, but demand for drugs hasn't declined. In the U.S., total spending on prescription drugs soared by 11.4% in 2023 to reach $449.7 billion.

Prescription drugs are a cornerstone of our health system, but they soak up less than 10% of total healthcare expenses. With such a terrific value proposition, it's just a matter of time before institutional investors begin hurling capital at the biotech industry again.

Healthpeak Properties is a real estate investment trust (REIT) that acquires and builds laboratories for the world's largest pharmaceutical businesses, biotech start-ups, and everything in between. To offset losses caused by less capital reaching pre-commercial drugmakers, it merged with Physicians Realty Trust last March. The merger diversified Healthpeak's portfolio with heaps of medical office buildings, but the increased share count forced it to slash dividend payments.

If there's one thing REIT investors won't tolerate, it's a dividend reduction. As a result, you can buy Healthpeak Properties at bargain bin prices right now. This year, management expects funds from operations, a proxy for earnings used to evaluate REITs, to reach $1.84 per share at the midpoint of its guided range. With its stock price down around $18 per share, you can scoop up the stock for roughly 10 times this year's adjusted FFO expectation.

Shares of Healthpeak Properties offer a huge 6.8% dividend yield at recent prices. Adding some shares to a diversified portfolio, and holding on for decades, looks like the right move for most investors.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Healthpeak Properties and Novo Nordisk. The Motley Fool has a disclosure policy.