From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. 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 9.1%. This drop was worse than the S&P 500’s 1.8% loss.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one healthcare stock boasting a durable advantage and two we’re passing on.

Two Healthcare Stocks to Sell:

Incyte (INCY)

Market Cap: $11.72 billion

Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.

Why Are We Hesitant About INCY?

1. Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 13.9 percentage points

2. Earnings per share have dipped by 14.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term

3. Waning returns on capital imply its previous profit engines are losing steam

Incyte is trading at $60 per share, or 10.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than INCY .

UFP Technologies (UFPT)

Market Cap: $1.63 billion

With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ:UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.

Why Is UFPT Not Exciting?

1. Modest revenue base of $504.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies

2. Free cash flow margin has stayed in place over the last five years

At $211.99 per share, UFP Technologies trades at 3.3x trailing 12-month price-to-sales. If you’re considering UFPT for your portfolio, see our FREE research report to learn more .

One Healthcare Stock to Watch:

Lantheus (LNTH)

Market Cap: $6.77 billion

Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.