Personal health and wellness is one of the many secular tailwinds for healthcare companies. But speed bumps have persisted in the wake of COVID-19 as players destocked inventories in 2023 and 2024. This has weighed on the returns lately as the industry has pulled back by 1.7% over the past six months. This performance is a noticeable divergence from the S&P 500’s 9% return.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Healthcare Stocks to Sell:
STERIS (STE)
Market Cap: $21.53 billion
Founded in 1985, Steris (NYSE: STE) provides infection prevention, sterilization, and surgical support products for the healthcare, pharmaceutical, and research industries to ensure safety and operational efficiency.
Why Does STE Fall Short?
- Adjusted operating margin failed to increase over the last two years, indicating the company made no progress on optimizing its expenses
- 1.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $219.34 per share, STERIS trades at 22.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than STE.
GoodRx (GDRX)
Market Cap: $1.86 billion
Founded in 2011, GoodRx (NASDAQ: GDRX) provides a platform allowing consumers to compare prescription drug prices, access discounts, and save on medications through its digital tools.
Why Do We Pass on GDRX?
- Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 12.9 percentage points
- Negative returns on capital reveal that some of its growth strategies have backfired
GoodRx is trading at $5.17 per share, or 11.8x forward price-to-earnings. If you’re considering GDRX for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Cigna (CI)
Market Cap: $81.41 billion
Serving both corporate clients and individual customers, Cigna (NYSE: CI) offers health insurance and pharmacy benefit management services that cover medical, dental, behavioral health, and vision needs.
Why Could CI Be a Winner?
- Market share has increased this cycle as its 17% annual revenue growth over the last two years was exceptional
- Enormous revenue base of $247.1 billion gives it power over plan holders and advantageous reimbursement terms with healthcare providers
- Earnings growth has comfortably beaten the peer group average over the last five years as its EPS has compounded at 9.9% annually
Cigna’s stock price of $301 implies a valuation ratio of 9.3x forward price-to-earnings. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
