Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 21.1% over the past six months, topping the S&P 500 by 10.6 percentage points.
Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. On that note, here is one healthcare stock poised to generate sustainable market-beating returns and two best left ignored.
Two Healthcare Stocks to Sell:
Hologic (HOLX)
Market Cap: $16.72 billion
As a pioneer in 3D mammography technology that has revolutionized breast cancer detection, Hologic (NASDAQ: HOLX) develops and manufactures diagnostic products, medical imaging systems, and surgical devices focused primarily on women's health and wellness.
Why Does HOLX Give Us Pause?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 20.6 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $75.03 per share, Hologic trades at 16.5x forward P/E. Read our free research report to see why you should think twice about including HOLX in your portfolio.
Bruker (BRKR)
Market Cap: $7.52 billion
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ: BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Does BRKR Fall Short?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Free cash flow margin dropped by 11.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Bruker’s stock price of $49.44 implies a valuation ratio of 24.4x forward P/E. Dive into our free research report to see why there are better opportunities than BRKR.
One Healthcare Stock to Watch:
Elevance Health (ELV)
Market Cap: $84.88 billion
Formerly known as Anthem until its 2022 rebranding, Elevance Health (NYSE: ELV) is one of America's largest health insurers, serving approximately 47 million medical members through its network-based managed care plans.
Why Do We Like ELV?
- Products and services resonate with customers, evidenced by its respectable 10.7% annualized sales growth over the last five years
- Dominant market position is represented by its $193.3 billion in revenue, which gives it negotiating power over membership pricing and reimbursement rates
- ROIC punches in at 27.7%, illustrating management’s expertise in identifying profitable investments
Elevance Health is trading at $379.50 per share, or 14x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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