Personal health and wellness is one of the many secular tailwinds for healthcare companies. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have caused the industry to lag recently - over the past six months, the collective 3.8% gain for healthcare stocks has fallen short of the S&P 500’s 10.9% rise.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here is one resilient healthcare stock at the top of our wish list and two best left ignored.
Two Healthcare Stocks to Sell:
Integer Holdings (ITGR)
Market Cap: $3.03 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Are We Wary of ITGR?
- Subscale operations are evident in its revenue base of $1.86 billion, meaning it has fewer distribution channels than its larger rivals
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- ROIC of 5.4% reflects management’s challenges in identifying attractive investment opportunities
Integer Holdings is trading at $90 per share, or 14.1x forward P/E. Check out our free in-depth research report to learn more about why ITGR doesn’t pass our bar.
LifeStance Health Group (LFST)
Market Cap: $2.99 billion
With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.
Why Does LFST Worry Us?
- Revenue base of $1.49 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Negative returns on capital show that some of its growth strategies have backfired
At $7.71 per share, LifeStance Health Group trades at 22.9x forward P/E. If you’re considering LFST for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Zoetis (ZTS)
Market Cap: $32.57 billion
Originally spun off from Pfizer in 2013 as the world's largest pure-play animal health company, Zoetis (NYSE: ZTS) discovers, develops, and sells medicines, vaccines, diagnostic products, and services for pets and livestock animals worldwide.
Why Are We Positive on ZTS?
- Constant currency growth averaged 8.7% over the past two years, showing it can expand globally regardless of the macroeconomic environment
- ZTS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute
- Industry-leading 28.6% return on capital demonstrates management’s skill in finding high-return investments
Zoetis’s stock price of $77.89 implies a valuation ratio of 11.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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