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 28.9% gain over the past six months, beating the S&P 500 by 18 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. On that note, here is one healthcare stock boasting a durable advantage and two that may face trouble.
Two Healthcare Stocks to Sell:
CooperCompanies (COO)
Market Cap: $14.87 billion
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ:COO) develops and manufactures medical devices focused on vision care through contact lenses and women’s health including fertility products and services.
Why Are We Hesitant About COO?
- Muted 6.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
- ROIC of 4.6% reflects management’s challenges in identifying attractive investment opportunities
CooperCompanies’s stock price of $76.22 implies a valuation ratio of 16.1x forward P/E. To fully understand why you should be careful with COO, check out our full research report (it’s free).
PacBio (PACB)
Market Cap: $419.6 million
Pioneering what scientists call “HiFi long-read sequencing,” recognized as Nature Methods’ method of the year for 2022, Pacific Biosciences (NASDAQ:PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.
Why Is PACB Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.2% annually over the last two years
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
PacBio is trading at $1.36 per share, or 2.3x forward price-to-sales. Check out our free in-depth research report to learn more about why PACB doesn’t pass our bar.
One Healthcare Stock to Buy:
Clover Health (CLOV)
Market Cap: $2.20 billion
Founded in 2014 to improve healthcare for America’s seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.
Why Do We Love CLOV?
- Annual revenue growth of 36.9% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 15.2% annually
- Free cash flow profile has moved into positive territory over the last five years, showing the company is at an important crossroads
At $4.14 per share, Clover Health trades at 27.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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