The Best Healthcare Stocks to Buy

Healthcare stocks appeal to investors for a few different reasons.

• They are considered defensive, meaning they can hold up better than some other sectors during an economic slowdown.
• Demand for health-related products and services continues to rise as populations age.
• Healthcare companies tend to have high research and development spending, which can generate major improvements in treatment options.

In the year to date, the Morningstar US Healthcare Index rose 11.59%, while the Morningstar US Total Market Index gained 14.40%.

The 12 Best Healthcare Stocks to Buy Now

These were the most undervalued healthcare stocks that Morningstar’s analysts cover as of Sept. 22, 2026.

1. Ionis Pharmaceuticals IONS
2. Baxter International BAX
3. Fresenius Medical Care FMS
4. Philips PHG
5. Insulet PODD
6. Sanofi SNY
7. Prestige Consumer Healthcare PBH
8. Boston Scientific BSX
9. BioMarin Pharmaceutical BMRN
10. Zoetis ZTS
11. Zimmer Biomet Holdings ZBH
12. Smith & Nephew SNN

To come up with our list of the best healthcare stocks to buy now, we screened for:

• Healthcare stocks that are undervalued, as measured by our
  price/fair value
  metric.
• Stocks that earn narrow or wide
  Morningstar Economic Moat Ratings
  . We think companies with narrow economic moat ratings can fight off competitors for at least 10 years; wide-moat companies should remain competitive for 20 years or more.
• Stocks that earn a Low, Medium, High, or Very High
  Morningstar Uncertainty Rating
  , which captures the range of potential outcomes for a company’s fair value.

Here’s a little more about each of the best healthcare stocks to buy, including commentary from the Morningstar analysts who cover each company. All data is as of Sept. 22, 2026.

Ionis Pharmaceuticals

• Morningstar Price/Fair Value: 0.54
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Biotechnology

Biotechnology firm Ionis Pharmaceuticals is the most affordable stock on our list of the best healthcare stocks to buy. Ionis Pharmaceuticals is the leading developer of antisense technology to discover and develop novel drugs. The stock is trading 46% below our fair value estimate of $84 per share.

Ionis Pharmaceuticals is a leader in RNA-based therapies. Its spinal muscular atrophy drug Spinraza, marketed by partner Biogen, is the first RNA-based therapy to achieve blockbuster status. The firm’s antisense oligonucleotide,or ASO, technology faces strong competition from RNA interference technology emerging from Alnylam, Arrowhead, and Novo Nordisk (Dicerna), as well as gene editing and gene therapy pipelines at multiple firms. However, Ionis has built a massive pipeline of promising new drugs that are rapidly moving toward the market, securing a narrow moat.

Ionis’ therapies alter production of a given protein in the body, typically reducing production of a toxic mutant version. Therefore, Ionis can tackle diseases that are difficult to treat effectively with other methods, as its therapies are targeted (avoiding safety issues with off-target effects of small-molecule drugs), can act inside the cell (unlike antibody therapies), and are reversible (unlike gene therapy). Ionis has a broad pipeline and strong collaboration partners to help usher to market drugs for large indications, requiring large clinical trials and sales forces. Ionis spun out cardiovascular-focused Akcea in 2017 but reacquired full ownership again in 2020, given the advancement and increasing attractiveness of Akcea’s late-stage cardiology pipeline.

While first-generation ASOs had side effects that limited their commercial potential, we’re more enthusiastic about next-generation ASOs, which require much smaller doses and are easier to administer. AstraZeneca-partnered Wainua launched in 2024 in amyloidosis patients with polyneuropathy. Ionis has full rights to high-triglyceride drug olezarsen, which received US approval in December 2024 in a rare disorder and launched in 2026 in a broader population of severe hypertriglyceridemia. Ionis also holds US rights to hereditary angioedema drug Dawnzera which launched in the US in 2025. Partnered programs in neurology (Biogen), cardiology (Novartis), and the complement pathway (Roche) are also advancing, with multiple data readouts and regulatory milestones expected in 2026.

Read more about Ionis Pharmaceuticals here.

Baxter International

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Instruments and Supplies

Baxter offers a variety of medical supplies and equipment to providers. Trading 41% below our fair value estimate, Baxter International has an economic moat rating of narrow. We think shares of this stock are worth $40 per share.

Although the 2015 Baxalta spinoff was successful, Baxter’s financial results fell substantially in 2022-23 on external pressures, including inflation and weak medical utilization trends just after making the large Hillrom acquisition. However, elevated medical utilization, supply chain pressures easing, and new contracts with group purchasing organizations coming online since then, Baxter’s profits should be in turnaround mode.

Baxter is a top-tier medical supplier and capital equipment maker after spinning off its renal care business in early 2025. In general, these medical supplies and equipment should be sensitive to medical utilization trends and the financial health of its provider customers, both of which had been trending upward since 2024. On the medical supply side of the business, Baxter sells many injectable therapies, such as IV solutions, generic pharmaceuticals, and surgical tools to control bleeding. Through the late 2021 Hillrom acquisition, Baxter provides beds, patient-monitoring devices, and other digital tools. These capital equipment offerings, along with Baxter’s own infusion pumps, were negatively affected by inflationary pressures on input costs in the difficult 2022-23 period. We see these product sets as key areas of concern as new regulations could create some uncertainty around client finances after several years of booming medical utilization.

From a business strategy perspective, Baxter had been aiming to improve the profit growth of its businesses, but these potential client headwinds may put new pressure on Baxter to reach its goals. Also, while we are optimistic about its new CEO, uncertainty remains around the ultimate impact after his tenure began in September 2025.

Read more about Baxter International here.

Fresenius Medical Care

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Care Facilities

Next on our list of the best healthcare stocks to buy is Fresenius Medical Care. It is the largest dialysis company in the world, treating nearly 300,000 patients from about 3,600 clinics worldwide as of December 2025. The stock is trading at a 41% discount to our fair value estimate of $38 per share.

Fresenius Medical Care aims to help patients with end-stage renal disease, primarily through its dialysis clinic network and related medical technology. Its strengths in these related areas help Fresenius maintain the leading global position in this market. Even with the threat of obesity drug expansion in the long run, we expect the firm to benefit from decent demand in developed markets, such as the US, and even faster expansion in emerging markets in the long run. We expect revenue to grow in the low- to midsingle digits during the next five years. Additionally, after a pause in 2026 due to one-time headwinds, the firm aims to continue boosting its operating margins from a low base, which could positively influence its profit growth trajectory.

The company’s position as the top dialysis service provider and equipment maker in the world remains symbiotic and unique. Fresenius’ experience operating about 3,600 dialysis clinics around the globe gives it insights into caregiver and patient needs to inform service offerings and product innovation. Fresenius uses clinical observations to develop and then manufacture even better technology to treat ESRD patients. It outfits all its clinics with its own brand of equipment and consumables, which can have margin implications related to primarily to operating efficiency for staff. However, other dialysis clinics appreciate Fresenius’ technology as well, including DaVita, and Fresenius claims about 35% market share in dialysis equipment/consumables while serving about 10% of ESRD patients through its global clinics.

With growing clinical and payer support for at-home treatments, Fresenius is taking aim at those ESRD therapies with significant investments, too. It acquired NxStage Medical in 2019 for home hemodialysis, which appears differentiated in the industry for its ease of use and physical size. The company also aims to improve on its peritoneal dialysis offering.

Read more about Fresenius Medical Care here.

Philips

• Morningstar Price/Fair Value: 0.61
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Medical Devices

Koninklijke Philips is a diversified global healthcare company operating in three segments: diagnosis and treatment, connected care, and personal health. Philips trades at a 39% discount to our fair value estimate of $41 per share. The company earns a wide economic moat rating.

Philips is one of the leaders in imaging and image-guided therapies. But the company’s track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able to change the narrative, but uncertainty remains.

Philips’ diagnosis and treatment segment, composed of imaging, ultrasound, and image-guided therapy lines, is a member of the Big Three, along with Healthineers and GE HealthCare. Philips lacks the overall scale and footprint of its larger peers in diagnostic imaging but has strong presence in a number of modalities and the product portfolio breadth that allows it to compete effectively. In imaging areas, such as cardiovascular IGT, cardiac ultrasound, and monitoring, Philips is the industry leader and should capitalize on many favorable trends in the industry. We expect global demand for imaging equipment and services to grow in midsingle digits over the next decade, driven by the demographic shifts, expanding healthcare access, and penetration of new customer channels. All three main industry participants stand to benefit from total addressable market growth and also greater share at the expense of smaller and more niche providers.

However, Philips’ performance has been problematic for a number of years, punctuated by the massive and prolonged struggles in sleep care. Litigation resolution in 2024 is the important step in rebuilding sleep care, but the pathway and the ability for Philips to claw back its market position remains highly uncertain. The company still operates under consent decree in sleep care.

Emphasis on profitability is key. The company’s operating margins have been decimated by the sleep care issues but also by significant component sourcing challenges and margin compression in imaging. Currently, Philips materially lags its imaging peers on profitability, and we don’t expect this gap to close soon. However, we do believe that the margins have bottomed and should improve. But Philips has a long way to go to restore investor trust.

Read more about Philips here.

Insulet

• Morningstar Price/Fair Value: 0.65
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Devices

Insulet was founded in 2000 with the goal of making continuous subcutaneous insulin infusion therapy for diabetes easier to use. The stock trades at a 35% discount to our fair value estimate of $215 per share. The medical devices company earns a narrow economic moat rating.

With little direct competition in patch pumps for two decades, Insulet has been able to convert more users, especially patients on multiple daily injections, to its innovative, tubeless insulin pump. The firm has carved a path to meaningful profitability gains.

Until Insulet’s Omnipod came to market at the end of 2005, all insulin pumps consisted of a controller and an insulin reservoir attached to the injection site by a long, flexible tube. The Omnipod design eliminates the tubing, consolidating the insulin reservoir and a self-inserting cannula into a single pod, smaller than a deck of cards, which is controlled remotely via a phone app. The system is inconspicuous, easy to use, and has so far been very successful among patients new to insulin pumps. Omnipod has helped materially increase the penetration of pumps among Type 1 patients. The user-friendly Omnipod has been particularly successful among children and teens.

Over the last decade, Insulet has improved its manufacturing and commercialization strategies and made progress in achieving economies of scale to reduce costs, while expanding its user base. We like Insulet’s decisions to shift to direct distribution in Europe and expand capacity by investing in a highly automated manufacturing facility in the United States. Both moves have boosted margin expansion. Insulet continues to see adoption of its Omnipod 5 pump—the device that represents the company’s entrance into hybrid closed-loop technology that makes life easier with automated insulin delivery, or AID, throughout the day. While Insulet arrived with its AID solution later than rivals Tandem and Medtronic, Omnipod’s unique tubeless design has historically offered a qualitatively different patient experience.

The firm now faces the prospect of more direct competition as both Tandem Diabetes and MiniMed are set to roll out their own tubeless patch pumps in 2026 and 2027. However, preliminary information about the new competitive pumps leads us to believe Insulet’s form factor will still translate into a differentiated user experience, which should help defend Omnipod.

Read more about Insulet here.

Sanofi

• Morningstar Price/Fair Value: 0.67
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Drug Manufacturers—General

Sanofi develops and markets drugs with a concentration in immunology, vaccines, and rare diseases. Sanofi earns a narrow moat rating and trades at a 33% discount to our fair value estimate of $63 per share.

Sanofi’s wide lineup of branded drugs and vaccines and robust pipeline creates strong cash flows and a narrow economic moat.

Sanofi’s existing product line boasts several top-tier drugs, including immunology drug Dupixent, an IL-4/IL-13 inhibitor. Dupixent looks positioned to exceed peak sales of EUR 20 billion, with strong market share in atopic dermatitis, asthma, and chronic obstructive pulmonary disease. While Sanofi shares profits from the drug with Regeneron, very high expected sales should provide a strong tailwind to overall growth for the company. Over the medium term, Sanofi needs to develop or acquire assets to replace Dupixent’s eventual loss of exclusivity, which could be as early as 2031. Although its late-stage pipeline suffered several setbacks starting in in 2025 owing to disappointing readouts for amlitelimab (atopic dermatitis), tolebrutinib (multiple sclerosis), and itepekimab (chronic obstructive pulmonary disease), it still has excellent cash flow thanks to Dupixent and its strong portfolio of vaccines and rare disease drugs.

Sanofi is also active in emerging markets. While pricing in these territories is not usually much lower compared with developed markets, they are growing rapidly and can help hedge some of the potential pricing risks in the US.

A history of acquisitions and robust cash flow from operations means Sanofi could take advantage of further growth opportunities through external collaborations. We expect Sanofi’s acquisition focus on immunology drugs and rare-disease drugs will continue following several deals in this area.

Read more about Sanofi here.

Prestige Consumer Healthcare

• Morningstar Price/Fair Value: 0.68
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Drug Manufacturers—Specialty and Generic

Prestige Consumer Healthcare is one of the largest pure-play over-the-counter healthcare providers. It is an affordable healthcare stock, trading at a 32% discount to our fair value estimate of $70 per share. The drug manufacturer earns a narrow economic moat rating.

Prestige Consumer Healthcare is a pure-play over-the-counter healthcare player with significant exposure in the US and Australia. We expect the firm to grow through product innovations, increased household penetration, and e-commerce expansion. Once a brand gains consumer trust and starts taking share, Prestige has looked to expand indications laterally by targeting similar symptoms, thereby broadening its end markets. For example, Dramamine for a long time only played in the motion sickness space, but Prestige has spent the last number of years expanding its indication to the nausea market. While these outbreaks of categories can certainly expose Prestige to new competition, we believe it also affords the firm a new set of customers that it can win over. And given Prestige’s focus in small and niche categories, we don’t expect the company to try and compete with blockbuster brands from consumer packaged goods, or CPG, giants. Rather, we believe it will seek out adjacent categories that might be underpenetrated or composed of minor brands to displace with its recognizable brands.

We also think increasing household penetration will be another priority for Prestige’s future growth. We believe an increasing awareness of self-care to be a major catalyst in achieving this goal as an abundance of online resources helps consumers identify their own ailments and find necessary remedies. And we think consumer healthcare is among CPG categories that benefits from this more than others, as many minor conditions, such as sore throat, eye redness, and motion sickness, usually go untreated. The company was successful at this strategy with Hydralyte, an oral hydration booster, which doubled its penetration rate in Australia to 10% over the last few years. While educating consumers about health issues and solutions that Prestige offers is certainly not a quick turnaround, especially given the company’s small advertising and marketing budget compared with its larger competitors, we believe Prestige has a diverse portfolio of strong brands that can accomplish this over the long term, especially as the overall population ages.

Read more about Prestige Consumer Healthcare here.

Boston Scientific

• Morningstar Price/Fair Value: 0.70
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Devices

Boston Scientific focuses on less invasive medical devices that are inserted into the human body through small openings or cuts. The firm earns a narrow economic moat rating, and the shares of its stock look 30% undervalued relative to our $64 fair value estimate.

Boston Scientific has proved to be a fierce competitor among the three major cardiac device makers, with a record of meaningful innovation and impressive operational chops. Even a prolonged period of operational and management upheaval from 2006 to 2014 wasn’t enough to permanently impair Boston’s underlying business or the organization’s ability to develop and commercialize new technology platforms. Under CEO Michael Mahoney, the firm has focused on introducing novel technology, accelerating growth, and leveraging its historically formidable sales and marketing resources.

In the last decade, Boston has materially reduced its reliance on traditional cardiac rhythm management and coronary stents, which are mature markets at this point, and has focused on new technologies in underpenetrated markets. Boston has tapped into novel platforms, including its subcutaneous implantable defibrillator, left atrial appendage closure, and atrial fibrillation ablation products. The firm has also acquired adjacent technologies that open the door for it to compete in underpenetrated markets, including sacral neuromodulation for incontinence and peripheral mechanical thrombectomy. Despite trailing Medtronic on cardiac rhythm management, Boston remains in the game there with launches of comparable technologies and respectable market share.

Like other device firms, Boston has also seen some disappointments, especially in the structural heart area. This includes its Lotus transcatheter aortic valve and more recently the discontinuation of its Acurate Neo product. Nonetheless, we think Boston’s extensive and differentiated product portfolio in electrophysiology, endoscopy, urology, and vascular offer growth opportunities. The big question is whether Boston’s wide-ranging presence across device categories will be enough to maintain its competitive position, especially as rivals (including Medtronic, Stryker, Johnson & Johnson, and Abbott) seek further consolidation to solidify their place as hospital vendors.

Read more about Boston Scientific here.

BioMarin Pharmaceutical

• Morningstar Price/Fair Value: 0.70
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Biotechnology

BioMarin is a global biotechnology company focused on developing and commercializing therapies for rare genetic diseases. Shares of this narrow-moat firm’s stock look 30% undervalued relative to our $90 fair value estimate.

BioMarin is amassing a portfolio of rare genetic-disease therapies, making historical comparisons with Genzyme (acquired by Sanofi) difficult to avoid. Commercialization and research and development expenses kept BioMarin in the red for years despite multiple approved products, but we’re confident in the durable, profit-generating power of its current portfolio. With a deep in-house pipeline and the ability to supplement growth with strategic acquisitions, BioMarin is in a strong position.

BioMarin specializes in enzyme replacement therapies for ultra-rare diseases, often with only a few thousand patients globally, yet high pricing power and barriers to entry drive annual sales in the hundreds of millions. BioMarin partnered with Genzyme to launch its first drug, Aldurazyme, for mucopolysaccharidosis I, or MPS I. BioMarin’s MPS VI therapy, Naglazyme, continues to grow due to higher (more expensive) dosing as young patients mature; with peak sales expected near $630 million.

In addition, BioMarin treats patients with phenylketonuria, or PKU. While generic versions of Kuvan (mild to moderate PKU) launched in the US in 2020, the more potent drug Palynziq launched in 2018 in the US to serve adult patients with PKU, including those with more severe disease. PKU is generally well-diagnosed thanks to newborn screening programs, and no alternative drug therapies exist.

Voxzogo, launched in late 2021, has shown the ability to restore growth rates in young patients with achondroplasia, the most common form of dwarfism. Additional trials could extend Voxzogo’s use to other growth disorders, and we model total sales around $2 billion at peak.

In December 2025, BioMarin announced plans to acquire Amicus Therapeutics for $4.8 billion, adding two US and EU approved rare-disease therapies, Galafold (Fabry disease) and Pombiliti + Opfolda (Pompe disease). We see strong growth potential from leveraging BioMarin’s scale, global footprint, and commercial capabilities. We project Galafold and Pombiliti + Opfolda to each exceed $1 billion in annual sales by the end of our 10-year forecast, representing about 30% of total company revenue in 2034.

Read more about BioMarin Pharmaceutical here.

Zoetis

• Morningstar Price/Fair Value: 0.71
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—Specialty and Generic

Zoetis sells anti-infectives, vaccines, parasiticides, diagnostics, and other health products for animals. Shares of its stock trade at a 29% discount to our fair value estimate of $102 per share, and the company earns a wide moat rating.

Zoetis is the undisputed leader in the global animal health industry, and we believe it possesses the widest moat of all the competitors. Zoetis has set itself apart based on the impressive innovation that shows up across its product portfolio, including a number of drugs for specific pet ailments such as separation anxiety. The firm has also sought to expand its presence into virtually every type of animal-related health market, including aquaculture and pet diagnostics.

The animal health industry had long been largely ignored because these businesses were buried within larger human health companies, but no longer. It has many attractive characteristics, including cash-pay buyers, a fragmented customer base, relatively low development costs, and opportunities to introduce novel therapies. Because of the fragmented and cash-pay customer base, animal drugmakers hold significant pricing power. On the human health side, firms are traditionally at the mercy of payers. Government payers or large managed care firms with pharmacy benefit managers have more power to force generic utilization, squash price increases, and even, in extreme cases, extract sizable rebates from drug manufacturers. However, animal health products are purchased by a fragmented group of protein producers, veterinarians, and pet owners, allowing very little bargaining power over the highly concentrated animal health firms.

This industry also benefits from favorable growth tailwinds that should allow Zoetis to increase companion animal revenue at a high single-digit long-term growth rate. Zoetis has benefited from pet owners’ increasingly strong relationships with pets as members of the family, which drastically increases their willingness to pay for expensive treatments. However, heightened competition from Elanco and Merck has entered the picture, which we think can eat into Zoetis’ key parasiticide and dermatology franchises. This puts more pressure on the firm to develop and launch innovative therapies, which has been one of Zoetis’ strengths.

Read more about Zoetis here.

Zimmer Biomet Holdings

• Morningstar Price/Fair Value: 0.72
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Medical Devices

Zimmer Biomet designs, manufactures, and markets orthopedic reconstructive implants as well as supplies and surgical equipment for orthopedic surgery. The firm earns a wide moat rating, and the shares of its stock look 28% undervalued relative to our $130 fair value estimate.

Zimmer Biomet is the market leader in large-joint reconstruction, and we expect aging baby boomers and improving technology suitable for younger patients to fuel solid demand for hip and knee replacement that should offset price declines. Zimmer stumbled into a series of pitfalls in 2016-17, including integration issues, supply and inventory challenges, and quality concerns. The firm’s efforts to turn itself around have been admirable, though the pandemic slowed progress. Despite all the improvement, the firm still hasn’t reached consistent growth and profitability gains.

Zimmer’s strategy is two-pronged. First, it is focused on cultivating close relationships with orthopedic surgeons who make the brand choice. High switching costs and high-touch service keep the surgeons closely tied to their primary vendor. This tight relationship and vendor loyalty also help explain why market share shifts in orthopedic implants are glacial, at best. As long as Zimmer can launch comparable technology within a few years of its rivals, it can remain in a strong competitive position. Nevertheless, we think surgeon influence will inevitably erode, as the practice of medicine changes in response to healthcare reform. Over the long term, it will be more difficult for surgeons to run private practices profitably, and more of them will be open to employment at hospitals.

Second, the firm aims to accelerate growth through innovative products and improved execution. The latter is critical, in our view, to realizing the firm’s potential. Despite a range of structural competitive advantages, Zimmer Biomet in 2016-18 failed to shine in operations, which dragged down returns. Former CEO Bryan Hanson delivered substantial signs of progress. Now, current CEO Ivan Tornos must continue the progress on robotic technology placements (especially in outpatient settings), related consumable product pull-through, and expansion of the firm’s digital portfolio. Additionally, we anticipate the firm will flex its advantage in key areas, including extremities, trauma, and collaborations that involve sensor and digital technologies to improve surgical workflow.

Read more about Zimmer Biomet Holdings here.

Smith & Nephew

• Morningstar Price/Fair Value: 0.72
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Devices

Medical devices company Smith & Nephew rounds out our list of best healthcare stocks to buy. Smith & Nephew designs, manufactures, and markets orthopedic devices, sports medicine and arthroscopic technologies, and wound care solutions. The stock is 28% undervalued relative to our fair value estimate of $38 per share.

Impressive innovation has allowed Smith & Nephew to carve out a slice of the orthopedic, sports medicine, and wound care markets. Though the company is substantially smaller than the dominant orthopedic competitors, it has punched above its weight in terms of introducing meaningful innovation with its large joint replacements and sports medicine therapies. For example, its Oxinium technology has demonstrated lower rates of revisions in hip replacements. The firm has also commercialized Regeneten, an implant that facilitates the growth of tendonlike tissue.

Nevertheless, as the competitive set consolidates, we think Smith & Nephew’s position as a midsize competitor leaves it vulnerable as the hospital customer base seeks to reduce vendors to save costs. The firm’s market share—about 11% of hips and knees—translates into a tenuous position. Share shifts in this market are glacial at best, thanks to significant switching costs, and new technology does not necessarily overcome those switching costs. Smith & Nephew’s strong show of meaningful innovation translated into a mere 200-basis-point gain in share over the past dozen years. This showdown between technical innovation and the stickiness of surgeon preference underscores how difficult it is to induce practitioners to switch. This dynamic and Smith & Nephew’s smaller user base mean the firm could find itself locked out of more hospitals and healthcare systems in the future.

The firm has been aggressively seeking to leverage its established footprint in ambulatory surgical centers through its arthroscopy and sports medicine offerings to pull in large-joint reconstruction, focusing efforts to penetrate emerging markets and add new offerings such as Osiris Therapeutics for its regenerative products and Leaf Healthcare’s pressure sore-monitoring system. The jury is still out on whether this is enough to allow Smith & Nephew to compete effectively against rivals that continue to grow larger and remain independent. We think the firm’s best chance might be its hand-held Cori orthopedic robot, which is well suited to Smith & Nephew’s strong presence in outpatient settings.

Read more about Smith & Nephew here.

How to Find More of the Best Healthcare Stocks to Buy

Investors who’d like to extend their search for top healthcare stocks can do the following:

• Review Morningstar’s comprehensive list of healthcare stocks to investigate further.
• Stay up to date on the healthcare sector’s performance, key earnings reports, and more with Morningstar’s healthcare sector page.
• Read Morningstar’s Guide to Stock Investing to learn how our approach to investing can inform your stock-picking process.
• Use the Morningstar Investor screener to build a shortlist of healthcare stocks to research and watch.