Healthcare stocks often hold significant potential due to the constant demand for medical advancements. However, not all companies in this sector are poised for growth. Some face challenges that make them less attractive investments.
Three healthcare stocks, in particular, should be approached with caution. Despite the initial appeal, these firms may not provide the best value for money in the market. Their issues range from regulatory setbacks to financial instability, making them risky choices for investors.
For those looking for more stable investments, there are safer options in the healthcare sector that offer solid dividend payments. These alternatives provide a more reliable return and reduce the risk associated with healthcare stocks.
So with that being said, let’s examine three healthcare stocks to sell this spring. These names should be let go as I believe that the worst has yet to come for these companies.
CVS Health (CVS)
CVS Health (NYSE:CVS) is facing rampant theft and declining profit margins. Despite efforts to mitigate theft, these issues have led to store closures and financial instability.
The company has been working closely with law enforcement and attorneys general to tackle organized retail crime (ORC). They are also collaborating with other retailers and law enforcement agencies to dismantle large-scale criminal operations targeting retail stores.
In the first quarter of 2024, CVS reported total revenues of $88.4 billion, a 3.7% increase from the previous year. However, the company’s GAAP diluted earnings per share (EPS) fell to 88 cents from $1.65 in Q1 2023, and adjusted EPS dropped to $1.31 from $2.20. These declines were primarily due to higher medical costs and utilization pressures in the Medicare Advantage business.
Moreover, CVS had to revise its full-year 2024 guidance, lowering its GAAP diluted EPS to at least $5.64 from $7.06 and adjusted EPS to at least $7.00 from $8.30. The company also reduced its cash flow from operations guidance to at least $10.5 billion from $12 billion.
Teladoc Health (TDOC)
Teladoc Health (NYSE:TDOC) has experienced a significant decline in stock value, a 59% decrease. The company’s struggles with profitability and declining margins make it a risky investment.
In the first quarter, Teladoc reported a net loss of $81.9 million, compared to $69.2 million in Q1 2023, despite a slight revenue increase to $646 million. The cost of revenue and operating expenses remain high, contributing to the ongoing financial difficulties.
Additionally, Teladoc has been dealing with legal issues, including multiple class-action lawsuits alleging false statements and securities fraud.
I think the telehealth industry is a promising one but there are better alternatives to investing in TDOC. They are far less risky with more upside. Its declining stock price should be enough for most investors to realize that it’s not a high-probability contrarian play but rather one that could end up as a nightmare scenario.
Bionano Genomics (BNGO)
Bionano Genomics (NASDAQ:BNGO) has faced operational challenges and cash flow issues. Despite some growth in revenue from continuing operations, the company is still struggling to achieve profitability.
In Q1 2024, the company reported revenues of $8.8 million, an 18% increase year-over-year. Despite this growth, Bionano still posted a net loss of $31.2 million for the quarter. Cash, cash equivalents and available-for-sale securities dropped to $53.2 million from $102.3 million at the end of 2023.
To address financial instability, Bionano is implementing cost-saving measures, including reducing operating expenses by $35 million to $40 million and potentially cutting 110 to 125 jobs.
Still, I don’t believe that this will be enough to save BNGO’s financial future. The number of shares has increased by 74.60% in one year, severely diluting existing shareholders. If that is not enough, its free cash flow over the last 12 months stands at a negative $122.26 million, so either increased dilution or leverage will be needed to keep the lights on beyond just reducing its operating expenses.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.