Personal health and wellness is one of the many secular tailwinds for healthcare companies. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 1.8% return has trailed the S&P 500 by 9 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here are two healthcare stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Healthcare Stock to Sell:
Bio-Techne (TECH)
Market Cap: $7.42 billion
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Are We Out on TECH?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Smaller revenue base of $1.21 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Bio-Techne’s stock price of $47.36 implies a valuation ratio of 23.3x forward P/E. Dive into our free research report to see why there are better opportunities than TECH.
Two Healthcare Stocks to Watch:
ResMed (RMD)
Market Cap: $30.31 billion
Founded in 1989 to address the then-underdiagnosed condition of sleep apnea, ResMed (NYSE: RMD) develops cloud-connected medical devices and software solutions that treat sleep apnea, COPD, and other respiratory disorders for home and clinical use.
Why Does RMD Stand Out?
- Constant currency growth averaged 9.1% over the past two years, showing it can expand globally regardless of the macroeconomic environment
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 15.2% outpaced its revenue gains
- Free cash flow margin expanded by 21.4 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $210.19 per share, ResMed trades at 17.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
HCA Healthcare (HCA)
Market Cap: $87.09 billion
With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE: HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.
Why Is HCA a Top Pick?
- Dominant market position is represented by its $76.39 billion in revenue, which creates significant barriers to entry in this highly regulated industry
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- ROIC punches in at 28.8%, illustrating management’s expertise in identifying profitable investments
HCA Healthcare is trading at $394.50 per share, or 12.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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