Personal health and wellness is one of the many secular tailwinds for healthcare companies. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have harmed the industry’s returns - over the past six months, healthcare stocks have collectively shed 1.7%. This performance is a noticeable divergence from the S&P 500’s 8.9% 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 resilient healthcare stock at the top of our wish list and two we’re steering clear of.
Two Healthcare Stocks to Sell:
CooperCompanies (COO)
Market Cap: $17.7 billion
Founded in 1958, CooperCompanies (NASDAQ: COO) develops and manufactures of products in the eye care and women's health sectors, with its key products including contact lenses and fertility treatments.
Why Does COO Worry Us?
- Incremental sales over the last five years were less profitable as its 3.6% annual earnings per share growth lagged its revenue gains
- Underwhelming 5% return on capital reflects management’s difficulties in finding profitable growth opportunities
CooperCompanies’s stock price of $88.69 implies a valuation ratio of 21.9x forward price-to-earnings. If you’re considering COO for your portfolio, see our FREE research report to learn more.
Fortrea (FTRE)
Market Cap: $1.4 billion
Spun off from Labcorp in 2023, Fortrea Holdings (NASDAQ: FTRE) provides contract research and development services for pharmaceutical and biotechnology companies, specializing in clinical trials, laboratory services, and data management.
Why Do We Avoid FTRE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.5% annually over the last two years
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Fortrea is trading at $15.61 per share, or 12.6x forward price-to-earnings. Read our free research report to see why you should think twice about including FTRE in your portfolio.
One Healthcare Stock to Buy:
Cencora (COR)
Market Cap: $47.21 billion
The result of the 2001 merger between AmeriSource Health and Bergen Brunswig, Cencora (NYSE: COR) supplies pharmaceuticals and healthcare services to hospitals, pharmacies, clinics, and other facilities.
Why Do We Love COR?
- Enormous revenue base of $303.2 billion gives it leverage over plan holders and advantageous reimbursement terms with healthcare providers
- Share repurchases over the last five years enabled its annual earnings per share growth of 14.4% to outpace its revenue gains
- ROIC punches in at 64.3%, illustrating management’s expertise in identifying profitable investments
At $244.05 per share, Cencora trades at 15.6x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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