Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 17.4% gain over the past six months, beating the S&P 500 by 7.8 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. Keeping that in mind, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Healthcare Stocks to Sell:
CooperCompanies (COO)
Market Cap: $15.75 billion
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ:COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Does COO Worry Us?
- Sales trends were unexciting over the last two years as its 6.7% annual growth was below the typical healthcare company
- 7.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- ROIC of 5% reflects management’s challenges in identifying attractive investment opportunities
CooperCompanies’s stock price of $80.34 implies a valuation ratio of 17.9x forward P/E. If you’re considering COO for your portfolio, see our FREE research report to learn more.
Phibro Animal Health (PAHC)
Market Cap: $1.62 billion
With a portfolio of approximately 800 product lines serving farmers and veterinarians in 90 countries, Phibro Animal Health (NASDAQ:PAHC) develops, manufactures, and markets health products for livestock and companion animals, including antibacterials, vaccines, nutritional supplements, and mineral additives.
Why Are We Wary of PAHC?
- Revenue base of $1.4 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $39.93 per share, Phibro Animal Health trades at 13.4x forward P/E. To fully understand why you should be careful with PAHC, check out our full research report (it’s free).
One Healthcare Stock to Buy:
Humana (HUM)
Market Cap: $23.65 billion
With over 80% of its revenue derived from federal government contracts, Humana (NYSE:HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Why Is HUM a Top Pick?
- Solid 12.8% annual revenue growth over the last two years indicates its offering’s solve complex business issues
- Dominant market position is represented by its $126.3 billion in revenue, which gives it negotiating power over membership pricing and reimbursement rates
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Humana is trading at $195.60 per share, or 14.5x 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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