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 16.3% over the past six months, topping the S&P 500 by 7 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 boasting a durable advantage and two best left ignored.
Two Healthcare Stocks to Sell:
AMN Healthcare Services (AMN)
Market Cap: $1.19 billion
With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE: AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.
Why Are We Out on AMN?
- Declining travelers on assignment over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
AMN Healthcare Services’s stock price of $33.10 implies a valuation ratio of 38.4x forward P/E. To fully understand why you should be careful with AMN, check out our full research report (it’s free).
Novavax (NVAX)
Market Cap: $1.48 billion
Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ: NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.
Why Do We Avoid NVAX?
- Annual sales declines of 22.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Projected sales decline of 50.7% over the next 12 months indicates demand will continue deteriorating
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $9.41 per share, Novavax trades at 5.2x forward price-to-sales. Check out our free in-depth research report to learn more about why NVAX doesn’t pass our bar.
One Healthcare Stock to Buy:
McKesson (MCK)
Market Cap: $94.62 billion
With roots dating back to 1833, making it one of America's oldest continuously operating businesses, McKesson (NYSE: MCK) is a healthcare services company that distributes pharmaceuticals, medical supplies, and provides technology solutions to pharmacies, hospitals, and healthcare providers.
Why Are We Bullish on MCK?
- 14.3% annual revenue growth over the last two years surpassed the sector average as its offerings resonated with customers
- Dominant market position is represented by its $403.4 billion in revenue, which creates significant barriers to entry in this highly regulated industry
- Share buybacks catapulted its annual earnings per share growth to 17.9%, which outperformed its revenue gains over the last five years
McKesson is trading at $766.85 per share, or 17.1x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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