Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 3.6% gain over the past six months, beating the S&P 500 by 2.3 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’re steering clear of.
Two Healthcare Stocks to Sell:
AMN Healthcare Services (AMN)
Market Cap: $712.9 million
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 Do We Avoid AMN?
- Declining travelers on assignment over the past two years imply it may need to invest in improvements to get back on track
- Earnings per share have dipped by 16.9% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
AMN Healthcare Services is trading at $18.49 per share, or 9x forward P/E. Dive into our free research report to see why there are better opportunities than AMN.
Quest (DGX)
Market Cap: $21.82 billion
Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE: DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.
Why Do We Think Twice About DGX?
- Annual sales growth of 3.2% over the last five years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 7.8 percentage points
- 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
Quest’s stock price of $199.38 implies a valuation ratio of 18.7x forward P/E. Read our free research report to see why you should think twice about including DGX in your portfolio.
One Healthcare Stock to Buy:
Insulet (PODD)
Market Cap: $16.23 billion
Revolutionizing diabetes care with its tubeless "Pod" technology, Insulet (NASDAQ: PODD) develops and manufactures innovative insulin delivery systems for people with diabetes, primarily through its Omnipod product line.
Why Are We Bullish on PODD?
- Business is well-positioned no matter the global macroeconomic backdrop as its constant currency revenue growth averaged 25.9% over the past two years
- Free cash flow margin expanded by 30.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Rising returns on capital show management is finding more attractive investment opportunities
At $238.35 per share, Insulet trades at 36.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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