Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have seen decent returns lately as healthcare stocks were up 11.5% over the past six months, almost identical to the S&P 500.
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. With that said, here is one resilient healthcare stock at the top of our wish list and two we’re steering clear of.
Two Healthcare Stocks to Sell:
GE HealthCare (GEHC)
Market Cap: $37.36 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 Do We Think Twice About GEHC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share fell by 3.8% annually over the last four years while its revenue grew, showing its incremental sales were much less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.2 percentage points
GE HealthCare is trading at $83.10 per share, or 17.3x forward P/E. Dive into our free research report to see why there are better opportunities than GEHC.
Avantor (AVTR)
Market Cap: $7.81 billion
With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.
Why Does AVTR Worry Us?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $11.46 per share, Avantor trades at 13x forward P/E. If you’re considering AVTR for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
UnitedHealth (UNH)
Market Cap: $299 billion
With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE: UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.
Why Do We Like UNH?
- 11.5% annual revenue growth over the last five years was better than the sector average, highlighting the value of its products and services
- Unparalleled scale of $435.2 billion in revenue enables it to spread administrative costs across a larger membership base
- Industry-leading 20.4% return on capital demonstrates management’s skill in finding high-return investments
UnitedHealth’s stock price of $329.46 implies a valuation ratio of 19.7x 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
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