Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 27.5% gain over the past six months, beating the S&P 500 by 16.2 percentage points.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. Keeping that in mind, here is one healthcare stock poised to generate sustainable market-beating returns and two we would avoid.
Two Healthcare Stocks to Sell:
Centene (CNC)
Market Cap: $31.96 billion
Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE: CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.
Why Is CNC Not Exciting?
- Customer growth was choppy over the past two years, suggesting that increasing competition is causing challenges in landing new contracts
- Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $64.74 per share, Centene trades at 14x forward P/E. Check out our free in-depth research report to learn more about why CNC doesn’t pass our bar.
Mettler-Toledo (MTD)
Market Cap: $28.55 billion
With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE: MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.
Why Does MTD Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.9%
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Mettler-Toledo is trading at $1,426 per share, or 28.2x forward P/E. To fully understand why you should be careful with MTD, check out our full research report (it’s free).
One Healthcare Stock to Buy:
DexCom (DXCM)
Market Cap: $33.92 billion
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Outperform?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 12% over the past two years
- Free cash flow margin grew by 20.2 percentage points over the last five years, giving the company more chips to play with
- Returns on capital are climbing as management makes more lucrative bets
DexCom’s stock price of $89.41 implies a valuation ratio of 31.9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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.
