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 14.2%. This drawdown is a noticeable divergence from the S&P 500’s 5.4% return.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one healthcare stock poised to generate sustainable market-beating returns and two best left ignored.

Two Healthcare Stocks to Sell:

Masimo (MASI)

Market Cap: $8.46 billion

Founded in 1989 to solve the "unsolvable problem" of accurate pulse oximetry during patient movement, Masimo (NASDAQ: MASI) develops and manufactures noninvasive patient monitoring technologies, including its breakthrough pulse oximetry systems that accurately measure blood oxygen levels even during patient movement.

Why Do We Avoid MASI?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 21.2% annually over the last two years
2. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $156.02 per share, Masimo trades at 28.9x forward P/E. Dive into our free research report to see why there are better opportunities than MASI.

Labcorp (LH)

Market Cap: $21.88 billion

With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.

Why Does LH Give Us Pause?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 14.3 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

Labcorp is trading at $263.91 per share, or 15.7x forward P/E. Check out our free in-depth research report to learn more about why LH doesn’t pass our bar.

One Healthcare Stock to Watch:

Intuitive Surgical (ISRG)

Market Cap: $179.4 billion

Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ: ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.

Why Is ISRG on Our Radar?

1. Products are reaching more customers as its system placement averaged 11.4% growth over the past two years
2. Estimated revenue growth of 13.9% for the next 12 months implies its momentum over the last two years will continue
3. Earnings per share grew by 17.7% annually over the last five years, massively outpacing its peers

Intuitive Surgical’s stock price of $497 implies a valuation ratio of 59.8x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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