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 3.5%. This drawdown was discouraging since the S&P 500 returned 4.5%.

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 that may face trouble.

Two HealthcareStocks to Sell:

Pediatrix Medical Group (MD)

Market Cap: $1.18 billion

With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE: MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.

Why Do We Think MD Will Underperform?

1. Weak comparable store sales trends over the past two years suggest there may be few opportunities in its core markets to open new facilities
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.8% annually
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Pediatrix Medical Group is trading at $14.03 per share, or 9x forward P/E. Read our free research report to see why you should think twice about including MD in your portfolio.

Amphastar Pharmaceuticals (AMPH)

Market Cap: $1.09 billion

Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.

Why Does AMPH Worry Us?

1. Modest revenue base of $730.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend

At $23.38 per share, Amphastar Pharmaceuticals trades at 7x forward P/E. Dive into our free research report to see why there are better opportunities than AMPH.

One Healthcare Stock to Watch:

The Ensign Group (ENSG)

Market Cap: $8.75 billion

Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ: ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.

Why Do We Like ENSG?

1. Products are reaching more customers as its unit sales averaged 13.2% growth over the past two years
2. Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
3. Earnings per share grew by 18.4% annually over the last five years, massively outpacing its peers

The Ensign Group’s stock price of $153.35 implies a valuation ratio of 23.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

High-Quality Stocks for All Market Conditions

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