From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 3.6% over the past six months, topping the S&P 500 by 2.3 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 boasting a durable advantage and two we’re passing on.
Two Healthcare Stocks to Sell:
Solventum (SOLV)
Market Cap: $11.91 billion
Founded in 1985, Solventum (NYSE:SOLV) develops, manufactures, and commercializes a portfolio of healthcare products and services addressing critical customer and therapeutic patient needs.
Why Do We Think SOLV Will Underperform?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Performance over the past three years shows each sale was less profitable, as its earnings per share fell by 31.6% annually
- Free cash flow margin shrank by 26.7 percentage points over the last four years, suggesting the company is consuming more capital to stay competitive
At $70.11 per share, Solventum trades at 10.6x forward P/E. Read our free research report to see why you should think twice about including SOLV in your portfolio.
Envista (NVST)
Market Cap: $4.27 billion
Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.
Why Do We Pass on NVST?
- Sales trends were unexciting over the last two years as its 2.9% annual growth was below the typical healthcare company
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Envista’s stock price of $26.22 implies a valuation ratio of 18.4x forward P/E. Check out our free in-depth research report to learn more about why NVST doesn’t pass our bar.
One Healthcare Stock to Buy:
Cencora (COR)
Market Cap: $65.11 billion
Formerly known as AmerisourceBergen until its 2023 rebranding, Cencora (NYSE:COR) is a global pharmaceutical distribution company that connects manufacturers with healthcare providers while offering logistics, data analytics, and consulting services.
Why Do We Love COR?
- Unparalleled scale of $325.8 billion in revenue enables it to spread administrative costs across a larger membership base
- Share buybacks catapulted its annual earnings per share growth to 14.5%, which outperformed its revenue gains over the last five years
- ROIC punches in at 56.8%, illustrating management’s expertise in identifying profitable investments
Cencora is trading at $336.57 per share, or 18.8x 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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