3 Healthcare Stocks with Competitive Advantages
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, which has supported the industry’s returns lately - over the past six months, healthcare stocks have gained 10%, nearly mirroring the S&P 500.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. On that note, here are three healthcare stocks we think can generate sustainable market-beating returns.
Vertex Pharmaceuticals (VRTX)
Market Cap: $119.9 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?
- Solid 13.8% annual revenue growth over the last five years indicates its offerings solve complex business issues
- VRTX is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Vertex Pharmaceuticals is trading at $473.16 per share, or 25.3x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Alignment Healthcare (ALHC)
Market Cap: $4.29 billion
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ:ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Will ALHC Beat the Market?
- Market share has increased this cycle as its 45.4% annual revenue growth over the last two years was exceptional
- Earnings per share grew by 28.5% annually over the last four years, massively outpacing its peers
- Free cash flow margin expanded by 11 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $20.67 per share, Alignment Healthcare trades at 24.5x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Zoetis (ZTS)
Market Cap: $31.1 billion
Originally spun off from Pfizer in 2013 as the world's largest pure-play animal health company, Zoetis (NYSE:ZTS) discovers, develops, and sells medicines, vaccines, diagnostic products, and services for pets and livestock animals worldwide.
Why Are We Fans of ZTS?
- Steady constant currency growth over the past two years shows the company can pursue its global ambitions, even in uncertain economic times
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
Zoetis’s stock price of $74.81 implies a valuation ratio of 10.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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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.