Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 21.1% over the past six months, topping the S&P 500 by 10.6 percentage points.
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 is one healthcare stock boasting a durable advantage and two we’re passing on.
Two Healthcare Stocks to Sell:
Option Care Health (OPCH)
Market Cap: $5.73 billion
With a nationwide network of 177 locations serving 43 states and a team of over 4,500 clinicians, Option Care Health (NASDAQ: OPCH) is the largest independent provider of home and alternate site infusion services, delivering medications and clinical support to patients across the United States.
Why Is OPCH Not Exciting?
At $36.11 per share, Option Care Health trades at 19.5x forward P/E. To fully understand why you should be careful with OPCH, check out our full research report (it’s free).
Pfizer (PFE)
Market Cap: $147.2 billion
With roots dating back to 1849 when two German immigrants opened a fine chemicals business in Brooklyn, Pfizer (NYSE: PFE) is a global biopharmaceutical company that discovers, develops, manufactures, and sells medicines and vaccines for a wide range of diseases and conditions.
Why Are We Cautious About PFE?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Free cash flow margin dropped by 26.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Pfizer’s stock price of $25.81 implies a valuation ratio of 8.8x forward P/E. Read our free research report to see why you should think twice about including PFE in your portfolio.
One Healthcare Stock to Watch:
Stryker (SYK)
Market Cap: $138.6 billion
With over 150 million patients impacted annually through its innovative healthcare technologies, Stryker (NYSE: SYK) develops and manufactures advanced medical devices and equipment across orthopedics, surgical tools, neurotechnology, and patient care solutions.
Why Does SYK Stand Out?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 10.2% over the past two years
- Economies of scale give it some operating leverage when demand rises
- Earnings per share grew by 13.1% annually over the last five years, massively outpacing its peers
Stryker is trading at $362 per share, or 24.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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