From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 10.6% over the past six months while the S&P 500 was up 7.3%.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. On that note, here is one resilient healthcare stock at the top of our wish list and two we’re passing on.
Two Healthcare Stocks to Sell:
GE HealthCare (GEHC)
Market Cap: $38.22 billion
Spun off from industrial giant General Electric in 2023 after over a century as its healthcare division, GE HealthCare (NASDAQ: GEHC) provides medical imaging equipment, patient monitoring systems, diagnostic pharmaceuticals, and AI-enabled healthcare solutions to hospitals and clinics worldwide.
Why Are We Cautious About GEHC?
- The company has faced growth challenges as its 2.7% annual revenue increases over the last two years fell short of other healthcare companies
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
GE HealthCare is trading at $83.76 per share, or 16.6x forward P/E. Read our free research report to see why you should think twice about including GEHC in your portfolio.
IQVIA (IQV)
Market Cap: $27.54 billion
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Are We Hesitant About IQV?
- The company has faced growth challenges as its 2.8% annual revenue increases over the last two years fell short of other healthcare companies
- 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
- Free cash flow margin dropped by 3.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
IQVIA’s stock price of $162.21 implies a valuation ratio of 13x forward P/E. Check out our free in-depth research report to learn more about why IQV doesn’t pass our bar.
One Healthcare Stock to Watch:
The Ensign Group (ENSG)
Market Cap: $12.35 billion
Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ: ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.
Why Is ENSG Interesting?
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 13.8% annually
- ROIC punches in at 13.6%, illustrating management’s expertise in identifying profitable investments
At $214.22 per share, The Ensign Group trades at 28x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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