3 Top Healthcare Stocks to Buy in December

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If you're looking to put some healthcare stocks in your portfolio this holiday season, then it could be a very good time to consider Welltower Inc (NYSE: HCN) , Geron Corporation (NASDAQ: GERN) , and Exelixis, Inc. (NASDAQ: EXEL) . Why? Because our Fools think Welltower's restructuring puts it in a great position to benefit from one of healthcare's biggest trends, Geron is closing in on its first commercial-stage medicine, and Exelixis has some important dates on its calendar next year that could move the needle for investors. Read on to see if these three top stocks deserve a spot in your portfolio.

A turnaround play with very big growth potential

JasonHall (Welltower Inc): Over the past year, Welltower, the biggest healthcare real estate company in the U.S., has seen its cash flow weaken, with funds from operations down almost 14% last quarter. After a solid run for the company's stock, which was up about 18% at one point this year, the weak performance has its shares down 15% from the peak and about flat since the start of the year.

So why is Welltower worth buying now? In short, the company's strategic shift -- big asset sales over the past couple of years have lowered operating cash flow in the short term -- is set to pay off with potentially decades of future growth.

Welltower has made significant changes to its portfolio, selling off a substantial portion of its long-term care and post-acute care properties, as well as its hospital interests. The company is also increasing its investments in senior housing, especially facilities to care for and house older people with Alzheimer's and other forms of dementia. Over the next couple of decades, the number of people with dementia is set to double as the baby boomer generation moves into retirement age.

The growth of the world's elderly population will require substantial investments in facilities to care for the aging. Welltower is shifting its focus to this critical need in the early stages. It may take some time to play out, but with a 5.3% yield that's relatively secure, today's investors will get a nice income stream while the company gets ready for a decades-long growth story.

This small-cap biotech might put on a clinic in the years to come

Sean Williams(Geron): To be a "homer" for a second consecutive month, my top healthcare pick for December is small-cap clinical-stage drug developer Geron, which is a somewhat recent addition to my personal portfolio.

The risks of investing in clinical-stage drug developers are pretty easy to wrap your hands around. To begin with, the odds are stacked against a company's succeeding. Most compounds fail to even make it into clinical trials, and even there, a good majority are destined to fail to reach pharmacy shelves. That means clinical drug developers often struggle to find the funding needed to keep the lights on and the research going. In Geron's case, its risks are exacerbated by the fact that it has bet the farm on imetelstat, a telomerase inhibitor designed to treat myelofibrosis and myelodysplastic syndromes. There's nothing else substantial in its pipeline behind imetelstat.

But there are two exciting aspects of imetelstat that make me a believer. First, we have the clinical data itself. In early-stage studies, imetelstat wound up producing partial and complete responses in some myelofibrosis patients. Admittedly, this was a small trial, but no previous study had ever demonstrated any clinical response directly on myelofibrosis. In fact, the only Food and Drug Administration-approved drug to treat the disease, Incyte 's (NASDAQ: INCY) Jakafi, merely works on controlling its symptoms, such as enlarged spleen. Imetelstat demonstrated its ability to fight this rare disease like no other experimental medicine has before, which has me excited about its potential.

Second, Geron has secured a key licensing partner in Johnson & Johnson (NYSE: JNJ) . The deal, which was forged in 2014, gave Geron $35 million up front and dangled $900 million in additional milestones tied to imetelstat's development, approval, and net sales. Johnson & Johnson has managed the launch of countless blockbuster medicines, so it brings experience and marketing leadership to the table.

While not without risks, Geron looks to be an intriguing buy in the healthcare space, with its share price near a 52-week low.

A bigger addressable market could be on deck

Todd Campbell (Exelixis): Since winning FDA approval for Cabometyx in second- and third-line advanced kidney cancer in April 2016, it's been up, up, and away for Exelixis sales and stock price.

Cabometyx has captured significant market share in its approved indications, and that's translated into hundreds of millions of dollars in sales that management has used to pay off its debt. Business could get even better for Exelixis in 2018 because the FDA will decide in February whether to approve Cabometyx for first-line use too.

Currently, Pfizer 's (NYSE: PFE) Sutent, which generated $276 million in first-quarter revenue, dominates the first-line setting. However, Cabometyx outperformed Sutent in Exelixis' head-to-head study, reducing the risk of death by 20% and extending progression-free survival by about three months. Cabometyx's efficacy suggests that if the FDA gives an OK, it will become the preferred treatment, and if so, then Cabometyx revenue should climb significantly from its $90 million quarterly pace.

Exelixis could also benefit next year from an FDA decision on Cabometyx's use in liver cancer. Independent monitors stopped the Cabometyx liver cancer study early because it was working so well, and management plans to file for approval in advanced liver cancer early next year.

Overall, it could be a very good year for investors if the FDA cooperates, and that could make buying Exelixis' shares now -- ahead of regulatory decisions -- smart.

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Jason Hall has no position in any of the stocks mentioned. Sean Williams owns shares of Exelixis and Geron. Todd Campbell owns shares of Pfizer. His clients may have positions in the companies mentioned.

The Motley Fool owns shares of and recommends Exelixis and Johnson & Johnson. The Motley Fool recommends Welltower. 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.

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

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