Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 38% over the past six months while the S&P 500 was up 16.9%.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Keeping that in mind, here are two healthcare stocks boasting durable advantages and one that may face trouble.
One Healthcare Stock to Sell:
QuidelOrtho (QDEL)
Market Cap: $733.1 million
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ:QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Should You Sell QDEL?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $10.65 per share, QuidelOrtho trades at 13.3x forward P/E. Dive into our free research report to see why there are better opportunities than QDEL.
Two Healthcare Stocks to Buy:
Insulet (PODD)
Market Cap: $9.42 billion
Revolutionizing diabetes care with its tubeless "Pod" technology, Insulet (NASDAQ:PODD) develops and manufactures innovative insulin delivery systems for people with diabetes, primarily through its Omnipod product line.
Why Are We Bullish on PODD?
- Constant currency growth averaged 26.7% over the past two years, showing it can expand globally regardless of the macroeconomic environment
- Free cash flow margin expanded by 19.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are climbing as management makes more lucrative bets
Insulet’s stock price of $136.19 implies a valuation ratio of 19.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Eli Lilly (LLY)
Market Cap: $1.05 trillion
Founded in 1876 by a Civil War veteran and pharmacist frustrated with the poor quality of medicines, Eli Lilly (NYSE:LLY) discovers, develops, and manufactures pharmaceutical products for conditions including diabetes, obesity, cancer, immunological disorders, and neurological diseases.
Why Is LLY a Top Pick?
- Annual revenue growth of 43.1% over the last two years was superb and indicates its market share increased during this cycle
- Adjusted operating profits and efficiency rose over the last two years as it benefited from some fixed cost leverage
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 31.4% exceeded its revenue gains over the last five years
Eli Lilly is trading at $1,183 per share, or 27.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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