From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 18.7% over the past six months while the S&P 500 was up 9.8%.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. On that note, here are two healthcare stocks we think can generate sustainable market-beating returns and one we’re passing on.
One Healthcare Stock to Sell:
Organon (OGN)
Market Cap: $2.16 billion
Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE: OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.
Why Do We Think Twice About OGN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 17.6% annually, worse than its revenue declines
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 24.8 percentage points
Organon’s stock price of $8.33 implies a valuation ratio of 2.2x forward P/E. Read our free research report to see why you should think twice about including OGN in your portfolio.
Two Healthcare Stocks to Watch:
iRhythm (IRTC)
Market Cap: $4.91 billion
Pioneering the shift from bulky, short-term heart monitors to sleek, wire-free patches, iRhythm Technologies (NASDAQ: IRTC) provides wearable cardiac monitoring devices and AI-powered analysis services that help physicians detect and diagnose heart rhythm disorders.
Why Could IRTC Be a Winner?
- Annual revenue growth of 23.4% over the last five years was superb and indicates its market share increased during this cycle
- Adjusted operating margin improvement of 17.1 percentage points over the last five years demonstrates its ability to scale efficiently
- Free cash flow turned positive over the last five years, showing the company has crossed a key inflection point
At $152.35 per share, iRhythm trades at 59.8x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Alignment Healthcare (ALHC)
Market Cap: $4.27 billion
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ: ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Will ALHC Outperform?
- Average customer growth of 41.2% over the past two years demonstrates success in acquiring new clients that could increase their spending in the future
- Earnings per share have massively outperformed its peers over the last four years, increasing by 30.1% annually
- Free cash flow flipped to positive over the last five years, indicating the company has achieved financial self-sustainability
Alignment Healthcare is trading at $21.26 per share, or 65.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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