Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. 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 1.7%. This drop is a stark contrast from the S&P 500’s 9% gain.

The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re steering clear of.

Two Healthcare Stocks to Sell:

STERIS (STE)

Market Cap: $21.53 billion

Founded in 1985, Steris (NYSE:STE) provides infection prevention, sterilization, and surgical support products for the healthcare, pharmaceutical, and research industries to ensure safety and operational efficiency.

Why Are We Wary of STE?

1. Adjusted operating margin didn’t move over the last two years, showing it couldn’t increase its efficiency
2. 1.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. ROIC of 5% reflects management’s challenges in identifying attractive investment opportunities

At $219.34 per share, STERIS trades at 22.4x forward price-to-earnings. If you’re considering STE for your portfolio, see our FREE research report to learn more.

GoodRx (GDRX)

Market Cap: $1.86 billion

Founded in 2011, GoodRx (NASDAQ:GDRX) provides a platform allowing consumers to compare prescription drug prices, access discounts, and save on medications through its digital tools.

Why Do We Pass on GDRX?

1. Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 12.9 percentage points
3. Negative returns on capital reveal that some of its growth strategies have backfired

GoodRx’s stock price of $5.17 implies a valuation ratio of 11.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why GDRX doesn’t pass our bar.

One Healthcare Stock to Watch:

Cigna (CI)

Market Cap: $81.41 billion

Serving both corporate clients and individual customers, Cigna (NYSE:CI) offers health insurance and pharmacy benefit management services that cover medical, dental, behavioral health, and vision needs.

Why Are We Fans of CI?

1. Annual revenue growth of 17% over the last two years was superb and indicates its market share increased during this cycle
2. Enormous revenue base of $247.1 billion gives it power over plan holders and advantageous reimbursement terms with healthcare providers
3. Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 9.9% annually

Cigna is trading at $301 per share, or 9.3x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our comprehensive 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 6 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.