Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. 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 6.7%. This performance was disappointing since the S&P 500 held its ground.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one resilient healthcare stock at the top of our wish list and two best left ignored.
Two Healthcare Stocks to Sell:
AbbVie (ABBV)
Market Cap: $320.9 billion
Born from a 2013 spinoff of Abbott Laboratories' pharmaceutical business, AbbVie (NYSE: ABBV) is a biopharmaceutical company that develops and markets medications for autoimmune diseases, cancer, neurological disorders, and other complex health conditions.
Why Do We Think Twice About ABBV?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Day-to-day expenses have swelled relative to revenue over the last two years as its adjusted operating margin fell by 9.2 percentage points
- Free cash flow margin dropped by 8.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
AbbVie is trading at $181.05 per share, or 14.3x forward P/E. If you’re considering ABBV for your portfolio, see our FREE research report to learn more.
Evolent Health (EVH)
Market Cap: $1.02 billion
Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.
Why Does EVH Fall Short?
- Estimated sales decline of 10.5% for the next 12 months implies a challenging demand environment
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Push for growth has led to negative returns on capital, signaling value destruction
At $8.82 per share, Evolent Health trades at 15.9x forward P/E. Check out our free in-depth research report to learn more about why EVH doesn’t pass our bar.
One Healthcare Stock to Watch:
Cardinal Health (CAH)
Market Cap: $36.27 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?
- Unparalleled scale of $222.3 billion in revenue gives it negotiating leverage and staying power in an industry with high barriers to entry
- Projected revenue growth of 8.4% for the next 12 months indicates demand will rise above its two-year trend
- Earnings growth has topped the peer group average over the last five years as its EPS has compounded at 7.7% annually
Cardinal Health’s stock price of $151.95 implies a valuation ratio of 17.4x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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