From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 4.3% return has trailed the S&P 500 by 2.8 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. 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:
Bristol-Myers Squibb (BMY)
Market Cap: $116.3 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?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.5% over the last five years was below our standards for the healthcare sector
- Projected sales decline of 8.6% for the next 12 months points to a tough demand environment ahead
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 10.4 percentage points
Bristol-Myers Squibb is trading at $57.00 per share, or 9.4x forward P/E. If you’re considering BMY for your portfolio, see our FREE research report to learn more.
Supernus Pharmaceuticals (SUPN)
Market Cap: $2.83 billion
With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ: SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.
Why Are We Out on SUPN?
- Muted 5.9% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Smaller revenue base of $776.9 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.6% annually while its revenue grew
Supernus Pharmaceuticals’s stock price of $50.61 implies a valuation ratio of 3.1x forward price-to-sales. To fully understand why you should be careful with SUPN, check out our full research report (it’s free).
One Healthcare Stock to Watch:
Elevance Health (ELV)
Market Cap: $80.15 billion
Formerly known as Anthem until its 2022 rebranding, Elevance Health (NYSE: ELV) is one of America's largest health insurers, serving approximately 47 million medical members through its network-based managed care plans.
Why Are We Fans of ELV?
- Decent 9.9% annual revenue growth over the last five years beat most of its peers, showing customers find value in its products and services
- Massive revenue base of $198.3 billion gives it meaningful leverage when negotiating reimbursement rates
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $362.98 per share, Elevance Health trades at 14.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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