From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 46.9% over the past six months, topping the S&P 500 by 25.5 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. With that said, 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:
The Pennant Group (PNTG)
Market Cap: $1.42 billion
Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ:PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.
Why Does PNTG Fall Short?
- Smaller revenue base of $1.09 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Poor free cash flow margin of 2.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
The Pennant Group is trading at $40.79 per share, or 26.8x forward P/E. Dive into our free research report to see why there are better opportunities than PNTG.
Two Healthcare Stocks to Watch:
Vertex Pharmaceuticals (VRTX)
Market Cap: $133.4 billion
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ:VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Why Is VRTX Interesting?
- Annual revenue growth of 13.5% over the last five years beat the sector average and underscores the unique value of its offerings
- Adjusted operating profits increased over the last two years as the company gained some leverage on its fixed costs and became more efficient
- Industry-leading 29.5% return on capital demonstrates management’s skill in finding high-return investments
Vertex Pharmaceuticals’s stock price of $523.65 implies a valuation ratio of 40.4x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
UnitedHealth (UNH)
Market Cap: $338 billion
With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE:UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.
Why Do We Like UNH?
- 10.6% annual revenue growth over the last five years was better than the sector average, highlighting the value of its products and services
- Unparalleled scale of $450.1 billion in revenue enables it to spread administrative costs across a larger membership base
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
At $377.09 per share, UnitedHealth trades at 17.6x 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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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.