From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. 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 has tumbled by 9.2%. This performance was worse than the S&P 500’s 1.8% loss.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here is one healthcare stock boasting a durable advantage and two we’re steering clear of.
Two Healthcare Stocks to Sell:
Align Technology (ALGN)
Market Cap: $12.42 billion
Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ: ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.
Why Does ALGN Give Us Pause?
- Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
At $167.96 per share, Align Technology trades at 16.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than ALGN.
Organon (OGN)
Market Cap: $4.02 billion
Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE: OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.
Why Should You Dump OGN?
- Annual sales declines of 3.6% for the past five years show its products and services struggled to connect with the market during this cycle
- Adjusted operating margin declined by 17.3 percentage points over the last five years as its sales cratered
- Earnings per share have contracted by 19.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
Organon is trading at $15.50 per share, or 3.9x forward price-to-earnings. If you’re considering OGN for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Globus Medical (GMED)
Market Cap: $10.17 billion
With operations spanning 64 countries and a portfolio of over 10 new products launched in 2023 alone, Globus Medical (NYSE: GMED) develops and sells implantable devices, surgical instruments, and technology solutions for spine, orthopedic, and neurosurgical procedures.
Why Are We Positive On GMED?
- Steady constant currency growth over the past two years shows the company can pursue its global ambitions, even in uncertain economic times
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 12.5% annually
- Strong free cash flow margin of 15% enables it to reinvest or return capital consistently
Globus Medical’s stock price of $73.12 implies a valuation ratio of 21.7x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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