These four stocks are healthcare’s “Magnificent Seven.”

As you know recently, the ‘Magnificent Seven’ is a group comprised of the following bullish stocks. nvidia, apologizeand microsoft, most of which have benefited significantly from the enthusiasm surrounding artificial intelligence (AI) efforts. But if the same concept were applied to the healthcare field rather than the technology field, which business would be equivalent?

As it turns out, there are only four stocks that offer the right combination of sustained growth and market-beating returns. These four great healthcare companies all have solid business models, rising stock prices, and, unfortunately, somewhat frothy valuations.

But they also have a very long growth runway and a history of good execution, so continued strong performance will likely justify the price tag. Let’s meet the players.

Eli Lilly and Novo Nordisk

ellie lily (Ellie -0.52%) and novo nordisk (NGO -1.46%) These are two big pharmaceutical stocks that don’t need much introduction due to the increasingly outrageous popularity of their blockbuster drugs for obesity and type 2 diabetes.

Eli Lilly makes Zepbound, the same treatment as the diabetes medication Mounjaro, but formulated for weight loss. It is the largest healthcare company by market capitalization, valued at $729 billion.

Novo Nordisk is the second-largest healthcare competitor by market capitalization, valued at $549 billion. It is responsible for Ozempic, a type 2 diabetes treatment, and Wegovy, an obesity-oriented version of the same drug.

Both companies plan to continue penetrating the same metabolic disease markets as well as other markets over the remainder of the decade and beyond. Their pipeline is full of mid- and late-stage programs that could be perfect tools in a variety of healthcare niches or expand the indications and addressable markets of already approved drugs.

And both companies don’t expect there to be any major problems competing for market share, considering the markets they’re interested in are incredibly deep and expected to continue to grow. Not sure if their trajectory matches grandeur? Consider the chart below: As you can see, they are rising rapidly and are worth buying if you don’t care about valuation.

NVO revenue (quarterly) data from YCharts.

Vertex Pharmaceuticals

Vertex Pharmaceuticals (VRTX -1.46%) Drug developer focused on rare diseases such as cystic fibrosis (CF). We recently commercialized Casgevy, a novel gene therapy for sickle cell disease (SCD) and beta thalassemia. CRISPR therapeutics. The market capitalization is $111 billion. And in fitting fashion, the stock is up a whopping 45% in the last 12 months.

One of the key factors driving Vertex’s stock higher and higher is that the company has a deeply entrenched cystic fibrosis drug in the market, with more being produced and tested all the time. In fact, of the 92,000 known CF patients in the Western world, Vertex currently treats all but 20,000 of those eligible.

Moreover, there are no direct competitors for its huge market share. And patients must take medication for the rest of their lives to control their symptoms.

With a secure revenue base from CF drug sales, the company can afford to invest in research and development (R&D) targeting larger, more competitive markets such as acute pain treatments. This means you can take a lot of ambitious shots at your goal without overextending yourself. That’s a big part of why the company’s trailing-12-month net income has grown 68% over the past five years, reaching $3.6 billion. As more programs are approved for sale, that number will increase, as will the stock price.

intuitive surgery

Lastly, we are a robotic surgery company. intuitive surgery (ISRG -0.26%)It boasts a market capitalization of $136.9 billion and sales of $7.1 billion in 2023.

In the business, hospital customers first purchase da Vinci brand robotic surgical devices. It then pays Intuitive for maintenance contracts, spare parts, new surgical tool heads, and training programs for surgeons, generating ongoing revenue over several years.

The more procedures customers perform with the da Vinci device, the more revenue they earn, and the more the device becomes a fixture in bariatric, urology, and general operating rooms.

And I don’t see any competition at the moment. So it’s no surprise that Intuitive’s profit margins are that wide, at 25%. Considering that demand for surgery isn’t likely to slow down anytime soon, what’s surprising is that the company isn’t already included in existing Magnificent Seven stock.