1 Healthcare Stock Worth Your Attention and 2 We Brush Off

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 26.1% over the past six months, topping the S&P 500 by 13.1 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. Taking that into account, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re passing on.

Two Healthcare Stocks to Sell:

Integer Holdings (ITGR)

Market Cap: $4.25 billion

With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE:ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.

Why Does ITGR Worry Us?

1. Muted 6.1% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Modest revenue base of $1.84 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Estimated sales growth of 1.6% for the next 12 months implies demand will slow from its two-year trend

Integer Holdings is trading at $125.07 per share, or 18.6x forward P/E. To fully understand why you should be careful with ITGR, check out our full research report (it’s free).

Evolent Health (EVH)

Market Cap: $471.5 million

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 Are We Cautious About EVH?

1. Weak average lives on platform over the past two years imply it may need to invest in improvements to get back on track
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate

Evolent Health’s stock price of $4.15 implies a valuation ratio of 12.4x forward P/E. Read our free research report to see why you should think twice about including EVH in your portfolio.

One Healthcare Stock to Watch:

Tenet Healthcare (THC)

Market Cap: $21.48 billion

With a network spanning nine states and serving primarily urban and suburban communities, Tenet Healthcare (NYSE:THC) operates a nationwide network of hospitals, ambulatory surgery centers, and outpatient facilities providing acute care and specialty healthcare services.

Why Are We Positive on THC?

1. Share buybacks catapulted its annual earnings per share growth to 18.6%, which outperformed its revenue gains over the last five years
2. Free cash flow margin expanded by 11.7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
3. Improving returns on capital reflect management’s ability to monetize investments

At $269.38 per share, Tenet Healthcare trades at 12.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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