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 9.4%. This performance was disappointing since the S&P 500 held its ground.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here are two healthcare stocks we think can generate sustainable market-beating returns and one that may face trouble.

One Healthcare Stock to Sell:

Chemed (CHE)

Market Cap: $8.9 billion

With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.

Why Is CHE Not Exciting?

1. Muted 4.6% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
2. Free cash flow margin dropped by 5.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Waning returns on capital imply its previous profit engines are losing steam

Chemed’s stock price of $608.07 implies a valuation ratio of 24.5x forward price-to-earnings. If you’re considering CHE for your portfolio, see our FREE research report to learn more.

Two Healthcare Stocks to Watch:

United Therapeutics (UTHR)

Market Cap: $14.5 billion

Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ:UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.

Why Could UTHR Be a Winner?

1. Annual revenue growth of 21.9% over the past two years was outstanding, reflecting market share gains this cycle
2. UTHR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
3. Improving returns on capital reflect management’s ability to monetize investments

United Therapeutics is trading at $323.60 per share, or 10.7x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Hims & Hers Health (HIMS)

Market Cap: $7.71 billion

Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE:HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.

Why Is HIMS Interesting?

1. Business is winning new contracts that can potentially increase in value as its customer base averaged 54.7% growth over the past two years
2. Free cash flow margin grew by 17.9 percentage points over the last five years, giving the company more chips to play with
3. Rising returns on capital show the company is starting to reap the benefits of its past investments

At $33.95 per share, Hims & Hers Health trades at 34x forward price-to-earnings. Is now a good time to buy? See for yourself in our in-depth 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 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.