From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 22% gain over the past six months, beating the S&P 500 by 14.2 percentage points.

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. Keeping that in mind, here are two healthcare stocks boasting durable advantages and one that may face trouble.

One Healthcare Stock to Sell:

Myriad Genetics (MYGN)

Market Cap: $544.4 million

Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ: MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.

Why Do We Pass on MYGN?

1. Annual revenue growth of 6% over the last two years was below our standards for the healthcare sector
2. Negative returns on capital show that some of its growth strategies have backfired, and its shrinking returns suggest its past profit sources are losing steam
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $5.97 per share, Myriad Genetics trades at 192.2x forward P/E. If you’re considering MYGN for your portfolio, see our FREE research report to learn more.

Two Healthcare Stocks to Watch:

Cardinal Health (CAH)

Market Cap: $49.53 billion

Operating as a critical link in the healthcare supply chain since 1979, Cardinal Health (NYSE: CAH) distributes pharmaceuticals and manufactures medical products for hospitals, pharmacies, and healthcare providers across the global healthcare supply chain.

Why Do We Like CAH?

1. Enormous revenue base of $234.3 billion gives it economies of scale and advantages over new entrants due to the industry’s regulatory complexity
2. Projected revenue growth of 12.1% for the next 12 months indicates demand will rise above its two-year trend
3. Earnings per share grew by 9.4% annually over the last five years, comfortably beating the peer group average

Cardinal Health is trading at $209.04 per share, or 20.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Merck (MRK)

Market Cap: $275.8 billion

With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE: MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.

Why Will MRK Outperform?

1. Dominant market position is represented by its $64.23 billion in revenue, which creates significant barriers to entry in this highly regulated industry
2. Adjusted operating margin expanded by 21 percentage points over the last two years as it scaled and became more efficient
3. Robust free cash flow margin of 22.1% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business

Merck’s stock price of $110.95 implies a valuation ratio of 17.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

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