From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 21.1% gain over the past six months, beating the S&P 500 by 10.6 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 is one healthcare stock boasting a durable advantage and two we’re swiping left on.
Two Healthcare Stocks to Sell:
10x Genomics (TXG)
Market Cap: $2.68 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Are We Cautious About TXG?
- Muted 4.2% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show that some of its growth strategies have backfired
At $21.28 per share, 10x Genomics trades at 4.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than TXG.
Ocular Therapeutix (OCUL)
Market Cap: $2.40 billion
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Should You Dump OCUL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- Free cash flow margin shrank by 206.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Ocular Therapeutix’s stock price of $11.30 implies a valuation ratio of 34.3x forward price-to-sales. Read our free research report to see why you should think twice about including OCUL in your portfolio.
One Healthcare Stock to Watch:
Abbott Laboratories (ABT)
Market Cap: $214.8 billion
With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE: ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.
Why Are We Fans of ABT?
- Economies of scale in a highly regulated sector make the company difficult to replace, giving it meaningful negotiating power
- Share buybacks propelled its annual earnings per share growth to 9.6%, which outperformed its revenue gains over the last five years
- ABT is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Abbott Laboratories is trading at $123.44 per share, or 22.6x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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