From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 2.4% over the past six months. Investing here would have been wise - at the same time, the S&P 500 shed 1% of its value.
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. Taking that into account, here is one healthcare stock boasting a durable advantage and two we’re steering clear of.
Two Healthcare Stocks to Sell:
Masimo (MASI)
Market Cap: $9.23 billion
Founded in 1989 to solve the "unsolvable problem" of accurate pulse oximetry during patient movement, Masimo (NASDAQ: MASI) develops and manufactures noninvasive patient monitoring technologies, including its breakthrough pulse oximetry systems that accurately measure blood oxygen levels even during patient movement.
Why Does MASI Give Us Pause?
- Sales tumbled by 16.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Modest revenue base of $1.48 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Masimo is trading at $175.64 per share, or 31x forward P/E. Read our free research report to see why you should think twice about including MASI in your portfolio.
Dentsply Sirona (XRAY)
Market Cap: $2.33 billion
With roots dating back to 1877 when it introduced the first dental electric drill, Dentsply Sirona (NASDAQ: XRAY) manufactures and sells professional dental equipment, technologies, and consumable products used by dentists and specialists worldwide.
Why Should You Sell XRAY?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Dentsply Sirona’s stock price of $11.89 implies a valuation ratio of 8.2x forward P/E. Dive into our free research report to see why there are better opportunities than XRAY.
One Healthcare Stock to Watch:
Cigna (CI)
Market Cap: $71.74 billion
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE: CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Why Are We Positive On CI?
- Annual revenue growth of 18.6% over the last two years was superb and indicates its market share increased during this cycle
- Unparalleled scale of $274.7 billion in revenue enables it to spread administrative costs across a larger membership base
- Earnings per share grew by 10.1% annually over the last five years and easily exceeded the peer group average
At $271.75 per share, Cigna trades at 8.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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