Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. 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 6.3%. This drop is a stark contrast from the S&P 500’s 5.1% gain.
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 best left ignored.
Two Healthcare Stocks to Sell:
Moderna (MRNA)
Market Cap: $12 billion
Founded in 2010 and widely known for its COVID-19 vaccine, Moderna (NASDAQ: MRNA) is a biotechnology company focused on developing messenger RNA (mRNA) therapeutics and vaccines.
Why Is MRNA Risky?
- Sales tumbled by 59% annually over the last two years, showing market trends are working against its favor during this cycle
- Free cash flow margin dropped by 369.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Moderna’s stock price of $31.14 implies a valuation ratio of 5.6x forward price-to-sales. Check out our free in-depth research report to learn more about why MRNA doesn’t pass our bar.
AMN Healthcare Services (AMN)
Market Cap: $1.01 billion
Founded in 1985, AMN Healthcare Services (NYSE: AMN) provides workforce and staffing services for the healthcare industry, specializing in placing nurses, physicians, and other health in various care settings.
Why Should You Dump AMN?
- Declining travelers on assignment over the past two years indicate demand is soft and that the company may need to revise its strategy
- Projected sales decline of 11.3% over the next 12 months indicates demand will continue deteriorating
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
AMN Healthcare Services is trading at $27.44 per share, or 17.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AMN.
One Healthcare Stock to Buy:
Elevance Health (ELV)
Market Cap: $89.32 billion
Known for its Blue Cross and Blue Shield brand, Elevance Health (NYSE: EVH) is a health insurance company formerly known as Anthem.
Why Are We Backing ELV?
- Enormous revenue base of $177 billion gives it leverage 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 11.2% annually
- Industry-leading 22.5% return on capital demonstrates management’s skill in finding high-return investments
At $392.87 per share, Elevance Health trades at 11.4x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
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