Personal health and wellness is one of the many secular tailwinds for healthcare companies. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 9.7% over the past six months, topping the S&P 500 by 1.8 percentage points.
Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. Keeping that in mind, here is one healthcare stock boasting a durable advantage and two we would avoid.
Two Healthcare Stocks to Sell:
Integra LifeSciences (IART)
Market Cap: $1.44 billion
Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ: IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.
Why Do We Pass on IART?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings per share fell by 2.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Integra LifeSciences’s stock price of $18.56 implies a valuation ratio of 7.6x forward P/E. If you’re considering IART for your portfolio, see our FREE research report to learn more.
Labcorp (LH)
Market Cap: $23.86 billion
With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.
Why Does LH Give Us Pause?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.6% annually over the last five years
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 11.1% annually, worse than its revenue
At $287.59 per share, Labcorp trades at 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than LH.
One Healthcare Stock to Watch:
ANI Pharmaceuticals (ANIP)
Market Cap: $1.67 billion
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Could ANIP Be a Winner?
- Annual revenue growth of 33.6% over the past two years was outstanding, reflecting market share gains this cycle
- Free cash flow margin jumped by 38.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
ANI Pharmaceuticals is trading at $78.49 per share, or 8.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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