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 17.4% over the past six months, topping the S&P 500 by 7.8 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. With that said, here is one healthcare stock boasting a durable advantage and two that may face trouble.
Two Healthcare Stocks to Sell:
Bausch + Lomb (BLCO)
Market Cap: $5.97 billion
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE: BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Does BLCO Worry Us?
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 20.4% annually
- Free cash flow margin dropped by 26.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Bausch + Lomb’s stock price of $16.87 implies a valuation ratio of 20.1x forward P/E. Check out our free in-depth research report to learn more about why BLCO doesn’t pass our bar.
Centene (CNC)
Market Cap: $21.43 billion
Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE: CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.
Why Does CNC Give Us Pause?
- Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 5.1% annually while its revenue grew
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $43.63 per share, Centene trades at 17.4x forward P/E. If you’re considering CNC for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Hims & Hers Health (HIMS)
Market Cap: $6.8 billion
Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE: HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.
Why Are We Positive On HIMS?
- Customer trends over the past two years show it’s maintaining a steady flow of new contracts that can potentially increase in value over time
- Free cash flow margin jumped by 21.3 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Improving returns on capital suggest its past investments are beginning to deliver value
Hims & Hers Health is trading at $29.62 per share, or 29x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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