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 13.3%. This drawdown was worse than the S&P 500’s 5.8% fall.
Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. Keeping that in mind, here are three healthcare stocks we’re swiping left on.
DaVita (DVA)
Market Cap: $11.04 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Is DVA Not Exciting?
- Sizable revenue base leads to growth challenges as its 2.4% annual revenue increases over the last five years fell short of other healthcare companies
- Flat treatments over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Estimated sales growth of 5% for the next 12 months is soft and implies weaker demand
DaVita is trading at $143.63 per share, or 12.7x forward P/E. If you’re considering DVA for your portfolio, see our FREE research report to learn more.
West Pharmaceutical Services (WST)
Market Cap: $15.43 billion
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Does WST Give Us Pause?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Day-to-day expenses have swelled relative to revenue over the last two years as its adjusted operating margin fell by 5.7 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
At $214.74 per share, West Pharmaceutical Services trades at 33.5x forward P/E. Dive into our free research report to see why there are better opportunities than WST.
Bristol-Myers Squibb (BMY)
Market Cap: $95.4 billion
With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE: BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.
Why Do We Think Twice About BMY?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.9% over the last two years was below our standards for the healthcare sector
- Sales are projected to tank by 4.4% over the next 12 months as demand evaporates
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Bristol-Myers Squibb’s stock price of $46.85 implies a valuation ratio of 7.1x forward P/E. Read our free research report to see why you should think twice about including BMY in your portfolio.
Stocks We Like More
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