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 caused the industry to lag recently - over the past six months, healthcare stocks were flat while the S&P 500 was up 11.6%.

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 resilient healthcare stock at the top of our wish list and two that may face trouble.

Two Healthcare Stocks to Sell:

ICU Medical (ICUI)

Market Cap: $3.06 billion

Founded in 1984 and named for its initial focus on intensive care units, ICU Medical (NASDAQ: ICUI) develops and manufactures medical products for infusion therapy, vascular access, and vital care applications used in hospitals and other healthcare settings.

Why Do We Avoid ICUI?

1. 1.3% annual revenue growth over the last two years was slower than its healthcare peers
2. Sales are projected to tank by 11% over the next 12 months as demand evaporates
3. Earnings per share fell by 19.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

At $121.62 per share, ICU Medical trades at 16.8x forward P/E. To fully understand why you should be careful with ICUI, check out our full research report (it’s free).

LifeStance Health Group (LFST)

Market Cap: $2.14 billion

With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.

Why Is LFST Not Exciting?

1. Smaller revenue base of $1.32 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Negative returns on capital show management lost money while trying to expand the business

LifeStance Health Group is trading at $5.49 per share, or 32.7x forward P/E. Check out our free in-depth research report to learn more about why LFST doesn’t pass our bar.

One Healthcare Stock to Watch:

Centene (CNC)

Market Cap: $14.76 billion

Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE: CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.

Why Are We Fans of CNC?

1. 14.2% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
2. Massive revenue base of $178.2 billion gives it meaningful leverage when negotiating reimbursement rates
3. Returns on capital are increasing as management’s prior bets are starting to bear fruit

Centene’s stock price of $30.03 implies a valuation ratio of 7.9x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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