Personal health and wellness is one of the many secular tailwinds for healthcare companies. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 7.4% return has trailed the S&P 500 by 3.6 percentage points.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here are two healthcare stocks we think can generate sustainable market-beating returns and one best left ignored.
One Healthcare Stock to Sell:
BrightSpring Health Services (BTSG)
Market Cap: $6.54 billion
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Does BTSG Worry Us?
- Earnings per share have dipped by 46% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Low free cash flow margin of 1.3% declined over the last five years as its investments ramped, giving it little breathing room
- ROIC of 3.9% reflects management’s challenges in identifying attractive investment opportunities
BrightSpring Health Services’s stock price of $32.33 implies a valuation ratio of 25.5x forward P/E. Check out our free in-depth research report to learn more about why BTSG doesn’t pass our bar.
Two Healthcare Stocks to Watch:
Abbott Laboratories (ABT)
Market Cap: $226.1 billion
With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE: ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.
Why Could ABT Be a Winner?
- Economies of scale in a highly regulated sector make the company difficult to replace, giving it meaningful negotiating power
- Share buybacks propelled its annual earnings per share growth to 9.6%, which outperformed its revenue gains over the last five years
- ABT is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Abbott Laboratories is trading at $129.49 per share, or 23.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Merck (MRK)
Market Cap: $239.3 billion
With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE: MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.
Why Are We Backing MRK?
- Unparalleled scale of $64.23 billion in revenue gives it negotiating leverage and staying power in an industry with high barriers to entry
- Adjusted operating profits increased over the last two years as the company gained some leverage on its fixed costs and became more efficient
- Free cash flow margin increased by 4.5 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $95.22 per share, Merck trades at 10.8x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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