Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. 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 9.8% return has trailed the S&P 500 by 7.3 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. On that note, here are two healthcare stocks boasting durable advantages and one we’re passing on.
One Healthcare Stock to Sell:
Penumbra (PEN)
Market Cap: $10.95 billion
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE: PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Is PEN Not Exciting?
- Revenue base of $1.33 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Underwhelming 2.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $279.80 per share, Penumbra trades at 59.6x forward P/E. To fully understand why you should be careful with PEN, check out our full research report (it’s free for active Edge members).
Two Healthcare Stocks to Watch:
Elevance Health (ELV)
Market Cap: $70.06 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 Positive On ELV?
- 10.6% annual revenue growth over the last five years was better than the sector average, highlighting the value of its products and services
- Unparalleled scale of $194.8 billion in revenue enables it to spread administrative costs across a larger membership base
- ROIC punches in at 27.7%, illustrating management’s expertise in identifying profitable investments
Elevance Health’s stock price of $315 implies a valuation ratio of 11.4x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
Universal Health Services (UHS)
Market Cap: $14.02 billion
With a network spanning 39 states and three countries, Universal Health Services (NYSE: UHS) operates acute care hospitals and behavioral health facilities across the United States, United Kingdom, and Puerto Rico.
Why Does UHS Stand Out?
- $16.99 billion in revenue gives its scale, which leads to bargaining power with customers because there are few trusted alternatives
- Share repurchases over the last five years enabled its annual earnings per share growth of 15% to outpace its revenue gains
- Free cash flow margin expanded by 6.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Universal Health Services is trading at $224.38 per share, or 9.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
