From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 22% gain over the past six months, beating the S&P 500 by 14.2 percentage points.
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. Keeping that in mind, here are two healthcare stocks boasting durable advantages and one that may face trouble.
One Healthcare Stock to Sell:
Myriad Genetics (MYGN)
Market Cap: $544.4 million
Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ:MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.
Why Do We Pass on MYGN?
- Annual revenue growth of 6% over the last two years was below our standards for the healthcare sector
- Negative returns on capital show that some of its growth strategies have backfired, and its shrinking returns suggest its past profit sources are losing steam
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $5.97 per share, Myriad Genetics trades at 192.2x forward P/E. If you’re considering MYGN for your portfolio, see our FREE research report to learn more.
Two Healthcare Stocks to Watch:
Cardinal Health (CAH)
Market Cap: $49.53 billion
Operating as a critical link in the healthcare supply chain since 1979, Cardinal Health (NYSE:CAH) distributes pharmaceuticals and manufactures medical products for hospitals, pharmacies, and healthcare providers across the global healthcare supply chain.
Why Do We Like CAH?
- Enormous revenue base of $234.3 billion gives it economies of scale and advantages over new entrants due to the industry’s regulatory complexity
- Projected revenue growth of 12.1% for the next 12 months indicates demand will rise above its two-year trend
- Earnings per share grew by 9.4% annually over the last five years, comfortably beating the peer group average
Cardinal Health is trading at $209.04 per share, or 20.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Merck (MRK)
Market Cap: $275.8 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 Will MRK Outperform?
- Dominant market position is represented by its $64.23 billion in revenue, which creates significant barriers to entry in this highly regulated industry
- Adjusted operating margin expanded by 21 percentage points over the last two years as it scaled and became more efficient
- Robust free cash flow margin of 22.1% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
Merck’s stock price of $110.95 implies a valuation ratio of 17.5x 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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