2 Healthcare Stocks to Buy and 1 to Approach With Caution

Key Points

Zoetis has strong growth prospects and an attractive income program.

BioNTech has a rich pipeline that could help jolt the stock as it makes clinical progress.

Intellia Therapeutics faces significant risks as it seeks to advance its gene-editing platform.

• 10 stocks we like better than Zoetis ›

While healthcare stocks have underperformed broader equities in recent years, there are still highly attractive companies in the sector worth consideration. However, other fairly popular healthcare players aren't worth investing in. Consider the following three healthcare stocks: Zoetis (NYSE: ZTS), BioNTech (NASDAQ: BNTX), and Intellia Therapeutics (NASDAQ: NTLA). The first two have lagged the market over the past year, while the last one has performed well. Even so, Zoetis and BioNTech are far more attractive stocks than Intellia Therapeutics for investors focused on the long game. Let me explain.

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A well-established animal health leader

Let's start with Zoetis, a company that focuses on animal health. Over the past two years, it has faced some challenges, including increased competition for one of its core growth drivers -- Apoquel, a medicine for allergic itch in dogs -- as well as scrutiny over potential side effects for Solensia and Librela, which treat osteoarthritis (OA) pain in cats and dogs, respectively.

However, Zoetis should eventually bounce back. Even with stiffer competition for Apoquel, the company has a strong presence in this niche and estimates that millions of dogs remain untreated or undertreated.

Meanwhile, it has earned approval for Portela and Lenivia, newer OA pain medicines for cats and dogs. These two also have the advantage of being long-acting options that can be administered every three months, compared to monthly for their predecessors.

These two should grab a decent share of the market. Meanwhile, in the long run, Zoetis should continue launching new products, as it has for a while, while capitalizing on increased spending on pets. Lastly, Zoetis is a fantastic dividend stock, having increased its payouts by 458% over the past decade, which makes it a top stock for income seekers.

An innovative biotech with a deep pipeline

BioNTech hasn't performed well due to significant issues in the coronavirus vaccine market. Recent regulatory changes in the U.S. have made it harder for many people to get vaccinated. Even before that, this area was somewhat unpredictable.

However, BioNTech is working on developing newer products. The company has a fairly impressive pipeline with more than 25 phase 2 or phase 3 clinical trials in oncology alone. Some of its candidates look particularly promising. Consider the company's BNT327, an investigational cancer medicine it is developing with Bristol Myers Squibb. This candidate is a bispecific antibody, a newer class of drugs. BioNTech believes BNT327 has the potential to set new standards of care across multiple indications.

Only time will tell if the biotech is right, but this and many other candidates are why the stock could bounce back and perform well over the next five years as it makes significant clinical and regulatory progress.

A high-risk gene editing specialist

Intellia Therapeutics has made progress with its leading pipeline candidates over the past year. They include lonvo-z, a potential gene-editing medicine for hereditary angioedema -- a genetic disorder that causes painful episodes of swelling -- and nex-z, an investigational treatment for transthyretin amyloidosis, a rare condition in which abnormal protein clumps form around some organs, causing cardiovascular (and other) problems. Nex-z and lonvo-z are Both are undergoing phase 3 studies.

Nex-z hit a roadblock last year when regulators placed its clinical trials on hold due to suspected adverse reactions following the death of a patient. But the U.S. Food and Drug Administration lifted the hold, allowing Intellia to move forward.

So, it seems like everything is going well for the biotech. However, it faces significant uncertainty. First, there is still the possibility that one -- or both -- of its late-stage assets will fail in ongoing studies. If that happens, the stock will fall off a cliff. Even if it doesn't, Intellia Therapeutics will face an uphill battle. Gene-editing treatments are expensive and difficult to administer. Between getting third-party payers on board and properly treating patients, it could be years before Intellia Therapeutics generates steady revenue from its products -- if it ever does. It will take even more time for the company to turn profitable. That's why the stock is very risky and not worth it for long-term investors right now.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Intellia Therapeutics, and Zoetis. The Motley Fool recommends BioNTech Se. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.