2 Healthcare Stocks with Exciting Potential and 1 We Avoid

Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, which has supported the industry’s returns lately - over the past six months, healthcare stocks have gained 5.7%, nearly mirrorring the S&P 500.

Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. Taking that into account, here are two resilient healthcare stocks at the top of our wish list and one we’re steering clear of.

One Healthcare Stock to Sell:

ICU Medical (ICUI)

Market Cap: $3.26 billion

Founded in 1984 and named for its initial focus on intensive care units, ICU Medical (NASDAQ:ICUI) develops and manufactures medical products for infusion therapy, vascular access, and vital care applications used in hospitals and other healthcare settings.

Why Do We Think Twice About ICUI?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Projected sales decline of 1.8% for the next 12 months points to an even tougher demand environment ahead
3. Free cash flow margin dropped by 11.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up

ICU Medical is trading at $132.16 per share, or 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than ICUI.

Two Healthcare Stocks to Watch:

Intuitive Surgical (ISRG)

Market Cap: $174.1 billion

Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ:ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.

Why Should ISRG Be on Your Watchlist?

1. Annual revenue growth of 18.9% over the past two years was outstanding, reflecting market share gains this cycle
2. Projected revenue growth of 14.2% for the next 12 months suggests its momentum from the last two years will persist
3. Earnings per share grew by 21.4% annually over the last five years, massively outpacing its peers

Intuitive Surgical’s stock price of $488.89 implies a valuation ratio of 49.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

Medpace (MEDP)

Market Cap: $13.36 billion

Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ:MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.

Why Do We Like MEDP?

1. Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 15.9% over the past two years
2. Share repurchases over the last five years enabled its annual earnings per share growth of 31.7% to outpace its revenue gains
3. Free cash flow margin jumped by 6.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

At $469.90 per share, Medpace trades at 26.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More

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