Personal health and wellness is one of the many secular tailwinds for healthcare companies. 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 11.1%. This drop was worse than the S&P 500’s 4% decline.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one healthcare stock boasting a durable advantage and two that may face trouble.

Two Healthcare Stocks to Sell:

Gilead Sciences (GILD)

Market Cap: $139.2 billion

From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ:GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.

Why Does GILD Worry Us?

1. Sizable revenue base leads to growth challenges as its 2.7% annual revenue increases over the last two years fell short of other healthcare companies
2. Efficiency has decreased over the last two years as its adjusted operating margin fell by 15 percentage points
3. Earnings per share have dipped by 5.6% annually over the past five years, which is concerning because stock prices follow EPS over the long term

At $109.50 per share, Gilead Sciences trades at 14.3x forward price-to-earnings. Check out our free in-depth research report to learn more about why GILD doesn’t pass our bar.

Revvity (RVTY)

Market Cap: $12.69 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?

1. 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
2. Adjusted operating margin declined by 8.3 percentage points over the last two years as its sales cratered
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Revvity is trading at $104.99 per share, or 21.2x forward price-to-earnings. Read our free research report to see why you should think twice about including RVTY in your portfolio, it’s free.

One Healthcare Stock to Watch:

Johnson & Johnson (JNJ)

Market Cap: $394.5 billion

Founded in 1886 and known for its iconic red cross logo, Johnson & Johnson (NYSE:JNJ) is a global healthcare company that develops and sells pharmaceuticals, medical devices, and technologies focused on human health and well-being.

Why Do We Like JNJ?

1. Massive revenue base of $88.82 billion in a highly regulated sector makes the company difficult to replace, giving it meaningful negotiating power
2. Robust free cash flow margin of 24.9% gives it many options for capital deployment
3. Industry-leading 25% return on capital demonstrates management’s skill in finding high-return investments

Johnson & Johnson’s stock price of $164.49 implies a valuation ratio of 15.7x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.