From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have harmed the industry’s returns - over the past six months, healthcare stocks have collectively shed 9.1%. This drop was worse than the S&P 500’s 1.8% loss.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one healthcare stock boasting a durable advantage and two we’re passing on.

Two Healthcare Stocks to Sell:

Incyte (INCY)

Market Cap: $11.72 billion

Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.

Why Are We Hesitant About INCY?

1. Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 13.9 percentage points
2. Earnings per share have dipped by 14.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term
3. Waning returns on capital imply its previous profit engines are losing steam

Incyte is trading at $60 per share, or 10.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than INCY.

UFP Technologies (UFPT)

Market Cap: $1.63 billion

With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ:UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.

Why Is UFPT Not Exciting?

1. Modest revenue base of $504.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Free cash flow margin has stayed in place over the last five years

At $211.99 per share, UFP Technologies trades at 3.3x trailing 12-month price-to-sales. If you’re considering UFPT for your portfolio, see our FREE research report to learn more.

One Healthcare Stock to Watch:

Lantheus (LNTH)

Market Cap: $6.77 billion

Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.

Why Could LNTH Be a Winner?

1. Market share has increased this cycle as its 34.6% annual revenue growth over the last five years was exceptional
2. Free cash flow margin jumped by 31 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
3. Returns on capital are climbing as management makes more lucrative bets

Lantheus’s stock price of $99.85 implies a valuation ratio of 14.3x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.