From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. 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 13.8%. This drop is a stark contrast from the S&P 500’s 5.8% 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 boasting a durable advantage and two we’re swiping left on.
Two HealthcareStocks to Sell:
AMN Healthcare Services (AMN)
Market Cap: $750.4 million
With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE: AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.
Why Do We Think AMN Will Underperform?
- Declining travelers on assignment over the past two years indicate demand is soft and that the company may need to revise its strategy
- Forecasted revenue decline of 8.1% for the upcoming 12 months implies demand will fall even further
- Eroding returns on capital suggest its historical profit centers are aging
AMN Healthcare Services’s stock price of $19.63 implies a valuation ratio of 16.1x forward P/E. Dive into our free research report to see why there are better opportunities than AMN.
Guardant Health (GH)
Market Cap: $5.64 billion
Pioneering the field of "liquid biopsy" with technology that can identify cancer-specific genetic mutations from a simple blood draw, Guardant Health (NASDAQ: GH) develops blood tests that detect and monitor cancer by analyzing tumor DNA in the bloodstream, helping doctors make treatment decisions without invasive biopsies.
Why Does GH Worry Us?
- Earnings per share fell by 23.7% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Guardant Health is trading at $45 per share, or 6.1x forward price-to-sales. Read our free research report to see why you should think twice about including GH in your portfolio.
One Healthcare Stock to Watch:
agilon health (AGL)
Market Cap: $856.9 million
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Do We Like AGL?
- Market share has increased this cycle as its 40.5% annual revenue growth over the last two years was exceptional
- Customer trends over the past two years show it’s maintaining a steady flow of new contracts that can potentially increase in value over time
- Earnings per share grew by 26% annually over the last three years, massively outpacing its peers
At $2.10 per share, agilon health trades at 0.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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