Is it time to bet on US healthcare stocks? Stryker and Pfizer are worth paying attention to.

For investors who are undecided between buying stocks and waiting for a pullback, we recommend healthcare stocks. They are neither purely defensive nor purely growth-oriented, but offer a middle ground.

Since the mid-1980s, the healthcare industry has had an average annual growth rate of 12%, the fastest growing of all industries, even surpassing the technology industry.

This year's decline has made valuations more attractive. Healthcare stocks are currently trading at a 5% discount to the S&P 500, historically at a premium of about 11%, but the fundamental outlook is almost no different.

Kevin Walkush, portfolio manager of the $10.1 billion Jensen Quality Growth Fund, likes several companies in the industry because they have defensive downside protection, but innovation and pricing power bring attractive long-term growth.

Stryker

He mentioned Stryker, a leading company in the field of hip and knee replacement, with a market capitalization of up to $108 billion.

According to Walkush, this is more like a recent growth driver, and it is a pioneer in robotic joint replacement surgery.

He believes that emerging markets are undergoing more complex surgeries, and the joint wear and tear of aging populations in developed countries will drive this trend.

Pfizer

Pfizer is also one of Walkush's favored companies. In 2019, Pfizer and partner BioNTech (BNTX) developed and commercialized the vaccine in record time. Walkush said the same approach could be applied to future drug and vaccine development to accelerate innovation.

The COVID-19 vaccine is a huge cash cow for Pfizer. Revenue in 2021 and 2022 is twice that of the previous two years, and free cash flow has almost doubled.

Management did not pay special dividends or buy back more shares, but instead made large acquisitions to enrich the company's drug development pipeline.

Pfizer acquired Seagen (SGEN), which is dedicated to cancer treatment, for $41 billion.

Walkush believes that the acquisition of Seagen is expensive-he calls it a "story that makes me look"-but he is confident in Pfizer's management.

He praised Pfizer for investing in long-term growth with the unexpected windfall from the COVID-19 vaccine.

Pfizer's stock valuation is not high: the price-to-earnings ratio calculated based on expected earnings for 12 months is 11 times, close to the average level of the past 5 years, while the price-to-earnings ratio of the S&P 500 index is 18 times.

This may require patience, but don't expect it to be cheap forever.