Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 24.9% over the past six months, topping the S&P 500 by 13.3 percentage points.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. Keeping that in mind, here is one healthcare stock poised to generate sustainable market-beating returns and two best left ignored.
Two Healthcare Stocks to Sell:
Encompass Health (EHC)
Market Cap: $11.85 billion
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE:EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Does EHC Fall Short?
- Sales trends were unexciting over the last five years as its 7.4% annual growth was below the typical healthcare company
- Poor comparable store sales performance over the past two years indicates it’s having trouble bringing new patients into its facilities
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 3.5 percentage points
At $120.92 per share, Encompass Health trades at 18.9x forward P/E. Read our free research report to see why you should think twice about including EHC in your portfolio.
West Pharmaceutical Services (WST)
Market Cap: $24.52 billion
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE:WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Does WST Give Us Pause?
- Sales trends were unexciting over the last five years as its 5.7% annual growth was below the typical healthcare company
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 5.3 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
West Pharmaceutical Services is trading at $348.47 per share, or 37.6x forward P/E. If you’re considering WST for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Halozyme Therapeutics (HALO)
Market Cap: $12.41 billion
Known for transforming hours-long intravenous infusions into minutes-long subcutaneous injections, Halozyme Therapeutics (NASDAQ:HALO) develops and licenses its proprietary ENHANZE technology that enables subcutaneous delivery of injectable drugs that would otherwise require intravenous administration.
Why Does HALO Stand Out?
- Annual revenue growth of 38% over the last two years was superb and indicates its market share increased during this cycle
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 24.7% annually
- Robust free cash flow margin of 47% gives it many options for capital deployment
Halozyme Therapeutics’s stock price of $107.09 implies a valuation ratio of 11.2x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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