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 18.7% gain over the past six months, beating the S&P 500 by 7.6 percentage points.
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. On that note, here are two resilient healthcare stocks at the top of our wish list and one we’re steering clear of.
One Healthcare Stock to Sell:
Privia Health (PRVA)
Market Cap: $2.88 billion
Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ: PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.
Why Are We Hesitant About PRVA?
- Modest revenue base of $2.04 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Poor free cash flow margin of 4.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Negative returns on capital show management lost money while trying to expand the business
At $23.42 per share, Privia Health trades at 24.5x forward P/E. To fully understand why you should be careful with PRVA, check out our full research report (it’s free).
Two Healthcare Stocks to Watch:
Globus Medical (GMED)
Market Cap: $12.28 billion
With operations spanning 64 countries and a portfolio of over 10 new products launched in 2023 alone, Globus Medical (NYSE: GMED) develops and sells implantable devices, surgical instruments, and technology solutions for spine, orthopedic, and neurosurgical procedures.
Why Could GMED Be a Winner?
- Constant currency growth averaged 58.8% over the past two years, showing it can expand globally regardless of the macroeconomic environment
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Earnings per share have massively outperformed its peers over the last five years, increasing by 21.6% annually
Globus Medical’s stock price of $91.95 implies a valuation ratio of 22.9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Medpace (MEDP)
Market Cap: $16.88 billion
Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ: MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.
Why Is MEDP on Our Radar?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 15.1% over the past two years
- Market share is on track to rise over the next 12 months as its 17.9% projected revenue growth implies demand will accelerate from its two-year trend
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Medpace is trading at $599.15 per share, or 37.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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