10 Healthy Health Care Stocks to Buy Now

There's strength throughout the sector.

Health care stocks have been extremely, well, healthy. The S&P 500 Health Care sector index has more than doubled since the middle of 2011, and even regained much of its lost ground after hitting a correction in August and September. While that pullback shook out some of the weaker players, the long-term positive trend in the industry remains, particularly in pharmaceutical and biotechnology stocks, says Marshall Gordon, senior health care analyst at ClearBridge Investments. "Now is a very good time to be investing in health care overall." Here are 10 stocks to consider.

Merck & Co. (ticker: MRK)

As a large-capitalization pharmaceutical stock, MRK is undervalued, says Damien Conover, director of health care equity research for Morningstar, a Chicago-based research group. The company's immuno-oncology presence in its drug development pipeline is underappreciated, he says. Immunotherapies, such as Merck's Keytruda, use the body's immune system to fight cancer, and Conover thinks the market hasn't recognized the drug's ability to work over several indications. Merck's third-quarter earnings per share of 96 cents came in slightly ahead the 92 cents analysts were expecting, while its year-on-year earnings growth is 6.67 percent.

Allergan PLC (AGN)

Conover sees the potential for strong growth rates for the core products of Allergan, a specialty pharmaceutical company. New indications for Botox, such as approval from the Food and Drug Administration this year that it can be used to treat upper limb spasticity in adults, bode well for the company. A promising next-generation drug pipeline and cost-cutting efforts should be able to help Allergan do better, he says. Gordon also likes Allergan, saying the company is a value play because its shares have been tarnished by association with other specialty pharmaceutical companies.

Teva Pharmaceutical Industries (TEVA)

The Israel-based generic drugmaker is a favorite of David Katz, chief investment officer at Matrix Asset Advisors. Teva stock has faced some headwinds this year, as its Copaxone drug is under pressure from a generic. But CEO Erez Vigodman, who took the helm last year, has been revitalizing the company, leading Teva's $40.5 billion purchase of Allergan's generics business. That buy was very accretive to Teva's earnings, Katz says.

Amgen (AMGN)

The biotech company has a strong development pipeline of potential drugs and has the ability to cut costs, Conover says. Its cholesterol-lowering drug Repatha, which was approved this summer, appears more promising than statins, he says. Amgen's third-quarter earnings per share of $2.72 was a substantial beat off analysts' estimates of $2.37.

BioMarin Pharmaceutical (BMRN)

With a full pipeline of potential drugs to treat rare diseases, BioMarin is Gordon's top pick among biotech stocks. Trial results will be in over the next 12 to 18 months, and Gordon expects the results will be more positive than not. He also thinks the company's muscular dystrophy drug, drisapersen, has a decent chance of being approved by the FDA. It is up for review this month.

Gilead Sciences (GILD)

Katz likes this top-tier biotech company that has successful HIV/AIDS drugs, a blockbuster hepatitis C treatment and a record of good acquisitions. The company has also returned a good deal of money to shareholders and this year implemented a dividend. The company is "off-the-charts cheap," Katz says. Shares of GILD stock can be bought for around nine times earnings -- the broader market is trading around 16 or 17 times earnings, and biotech is at a premium to even that.

Aetna (AET)

The diversified health care benefits company has room to grow, Gordon says. Aetna recently struck a deal to buy fellow insurer Humana for $34.1 billion, a combination that creates a major player in government business and that provides commercial business synergies. Those synergies should lead to higher earnings, Gordon says. The growth in health care services and faster growth in Aetna's government-focused position should lead to a higher price-to-earnings multiple.

Express Scripts Holding Co. (ESRX)

Conover likes this pharmacy benefit manager and health care account administration service provider. The market doesn't fully appreciate the Express Script's power in negotiating drug prices and improving margins, he says. Third-quarter earnings per share of $1.45 were slightly higher than analysts' expectations of $1.44.

CVS Health Corp. (CVS)

Gordon calls this pharmacy benefits manager and drugstore operator "a nice, solid grower over time." Because CVS owns both drugstores and its benefits business, it can offer services other companies cannot. The company's takeover of Target Corp.'s (TGT) pharmacy and clinic business will make CVS even stronger, Gordon says, adding that the company already has good cash flow and a growing dividend and buys back stock.

Zimmer Biomet Holdings (ZBH)

Katz says this company, which makes joint-replacement products, has a dynamic and growing business that is a good play on an aging population and one of the cheaper medical-product companies. This year's acquisition of competitor Biomet was a smart buy, as the two companies are headquartered in the same city in Indiana, making successful integration more likely and boosting synergies, he says. Because the acquisition had been delayed, the company lost some ground on sales, he says. But now the stock is rebounding on more upbeat earnings and improved efficiencies.

Matt Whittaker is a journalist specializing in natural resources coverage whose work has appeared in The Wall Street Journal, Barron's and other international publications. He has reported from the Americas, Europe and Asia.