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 10% over the past six months, topping the S&P 500 by 2.3 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here are three healthcare stocks we’re steering clear of.
Baxter (BAX)
Market Cap: $10.58 billion
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE: BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Do We Think BAX Will Underperform?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 7.2% annually
- Push for growth has led to negative returns on capital, signaling value destruction
At $21.83 per share, Baxter trades at 11.7x forward P/E. To fully understand why you should be careful with BAX, check out our full research report (it’s free).
CONMED (CNMD)
Market Cap: $1.04 billion
With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE: CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.
Why Does CNMD Give Us Pause?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Revenue base of $1.37 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
CONMED’s stock price of $33.58 implies a valuation ratio of 7.7x forward P/E. If you’re considering CNMD for your portfolio, see our FREE research report to learn more.
Revvity (RVTY)
Market Cap: $11.33 billion
Formerly known as PerkinElmer until its rebranding in 2023, Revvity (NYSE: RVTY) provides health science technologies and services that support the complete workflow from discovery to development and diagnosis to cure.
Why Do We Pass on RVTY?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Adjusted operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- Sales were less profitable over the last five years as its earnings per share fell by 14.7% annually, worse than its revenue declines
Revvity is trading at $109.37 per share, or 20.4x forward P/E. Dive into our free research report to see why there are better opportunities than RVTY.
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