From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have harmed the industry’s returns - over the past six months, healthcare stocks have collectively shed 9.1%. This drop was worse than the S&P 500’s 1.8% loss.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one healthcare stock boasting a durable advantage and two we’re passing on.
Two Healthcare Stocks to Sell:
Incyte (INCY)
Market Cap: $11.72 billion
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
Why Are We Hesitant About INCY?
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Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 13.9 percentage points
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Earnings per share have dipped by 14.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term
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Waning returns on capital imply its previous profit engines are losing steam
Incyte is trading at $60 per share, or 10.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than INCY .
UFP Technologies (UFPT)
Market Cap: $1.63 billion
With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ:UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.
Why Is UFPT Not Exciting?
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Modest revenue base of $504.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
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Free cash flow margin has stayed in place over the last five years
At $211.99 per share, UFP Technologies trades at 3.3x trailing 12-month price-to-sales. If you’re considering UFPT for your portfolio, see our FREE research report to learn more .
One Healthcare Stock to Watch:
Lantheus (LNTH)
Market Cap: $6.77 billion
Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.
Why Could LNTH Be a Winner?
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Market share has increased this cycle as its 34.6% annual revenue growth over the last five years was exceptional
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Free cash flow margin jumped by 31 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
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Returns on capital are climbing as management makes more lucrative bets
Lantheus’s stock price of $99.85 implies a valuation ratio of 14.3x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free .
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks . This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free .
