Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 9.8% return has trailed the S&P 500 by 7.3 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here are two healthcare stocks boasting durable advantages and one we’re passing on.
Market Cap: $10.95 billion
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Is PEN Not Exciting?
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Revenue base of $1.33 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
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Underwhelming 2.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $279.80 per share, Penumbra trades at 59.6x forward P/E. Check out our free in-depth research report to learn more about why PEN doesn’t pass our bar.
Market Cap: $70.06 billion
Formerly known as Anthem until its 2022 rebranding, Elevance Health (NYSE:ELV) is one of America’s largest health insurers, serving approximately 47 million medical members through its network-based managed care plans.
Why Are We Positive On ELV?
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10.6% annual revenue growth over the last five years was better than the sector average, highlighting the value of its products and services
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Unparalleled scale of $194.8 billion in revenue enables it to spread administrative costs across a larger membership base
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ROIC punches in at 27.7%, illustrating management’s expertise in identifying profitable investments
Elevance Health’s stock price of $315 implies a valuation ratio of 11.4x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
Market Cap: $14.02 billion
With a network spanning 39 states and three countries, Universal Health Services (NYSE:UHS) operates acute care hospitals and behavioral health facilities across the United States, United Kingdom, and Puerto Rico.
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