From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 33.8% over the past six months, topping the S&P 500 by 24.7 percentage points.
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. Taking that into account, here are two resilient healthcare stocks at the top of our wish list and one we’re steering clear of.
One healthcare stock to sell:
Charles River Laboratories (CRL)
Market Cap: $16.21 billion
Named after the Massachusetts river where it was founded in 1947, Charles River Laboratories (NYSE: CRL) provides non-clinical drug development services, research models, and manufacturing support to pharmaceutical and biotechnology companies.
Why Is CRL Risky?
- 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
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Charles River Laboratories’s stock price of $336.66 implies a valuation ratio of 27.9x forward P/E. Check out our free in-depth research report to learn more about why CRL doesn’t pass our bar.
Two healthcare stocks to watch:
United Therapeutics (UTHR)
Market Cap: $24.17 billion
Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ: UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.
Why Could UTHR Be a Winner?
- Solid 14.7% annual revenue growth over the last five years indicates its offerings solve complex business issues
- UTHR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Industry-leading 29.1% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities
At $579.55 per share, United Therapeutics trades at 18.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
The Ensign Group (ENSG)
Market Cap: $10.02 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 Do We Like ENSG?
- Annual revenue growth of 17.6% over the past two years was outstanding, reflecting market share gains this cycle
- Projected revenue growth of 21% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 13.9% annually
The Ensign Group is trading at $174.50 per share, or 21.1x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks we like even more
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