Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, which has supported the industry’s returns lately - over the past six months, healthcare stocks have gained 11.5%, nearly mirrorring the S&P 500.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. On that note, here are two resilient healthcare stocks at the top of our wish list and one that may face trouble.
One Healthcare Stock to Sell:
Bristol-Myers Squibb (BMY)
Market Cap: $109.8 billion
With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE:BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.
Why Does BMY Worry Us?
- Annual sales growth of 3.9% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Projected sales decline of 6.5% for the next 12 months points to a tough demand environment ahead
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Bristol-Myers Squibb is trading at $54.05 per share, or 8.8x forward P/E. Read our free research report to see why you should think twice about including BMY in your portfolio.
Two Healthcare Stocks to Watch:
DexCom (DXCM)
Market Cap: $25.89 billion
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ:DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Outperform?
- Average organic revenue growth of 16.8% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Earnings per share grew by 17.5% annually over the last five years, massively outpacing its peers
- Free cash flow margin jumped by 17.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
DexCom’s stock price of $66.25 implies a valuation ratio of 28x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
Lantheus (LNTH)
Market Cap: $4.41 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 Are We Fans of LNTH?
- Market share has increased this cycle as its 35.5% annual revenue growth over the last five years was exceptional
- Free cash flow margin grew by 19.6 percentage points over the last five years, giving the company more chips to play with
- Rising returns on capital show management is finding more attractive investment opportunities
At $67.00 per share, Lantheus trades at 13.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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