Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 5.1% over the past six months while the S&P 500 was up 3.5%.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here is one resilient healthcare stock at the top of our wish list and two we’re swiping left on.
Two Healthcare Stocks to Sell:
Corcept (CORT)
Market Cap: $4.49 billion
Focusing on the powerful stress hormone that affects everything from metabolism to immune function, Corcept Therapeutics (NASDAQ: CORT) develops and markets medications that modulate cortisol to treat endocrine disorders, cancer, and neurological diseases.
Why Do We Think Twice About CORT?
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.9% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 27.1 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $43.10 per share, Corcept trades at 111.4x forward P/E. Read our free research report to see why you should think twice about including CORT in your portfolio.
Royalty Pharma (RPRX)
Market Cap: $20.69 billion
Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ: RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.
Why Are We Wary of RPRX?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Modest revenue base of $2.38 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
Royalty Pharma is trading at $48.28 per share, or 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than RPRX.
One Healthcare Stock to Watch:
Stryker (SYK)
Market Cap: $129.8 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?
- Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 10.2% over the past two years
- $25.12 billion in revenue gives its scale, which leads to bargaining power with customers because there are few trusted alternatives
- Incremental sales over the last five years boosted profitability as its annual earnings per share growth of 12.9% outstripped its revenue performance
Stryker’s stock price of $339.40 implies a valuation ratio of 22.7x 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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