Two 'Reliable' Healthcare Stocks That Are Far from Safe

Investors often view healthcare stocks as safer investments with consistent returns due to the mandatory nature of medical spending. However, not all companies in this sector are safe bets. Over the last five years, some healthcare stocks have significantly underperformed compared to broader market index funds. Today, we highlight two healthcare stocks, Walgreens Boots Alliance and CVS Health, which may disappoint investors in the near term.

1. Walgreens Boots Alliance (WBA) 📉

Despite a 12.5% stock jump after announcing the closure of 1,500 stores, Walgreens is struggling to achieve sustained profitability. Even as sales rise—projected at a 6.2% increase to $147.7 billion for fiscal 2024—operational inefficiencies limit earnings growth. This has led to the company cutting its dividend nearly in half earlier this year.

Current Concerns:

• Weak prescription reimbursements and retail sales, along with pressure on pharmacy margins, continue to pose risks. Management aims for better earnings in fiscal 2025, yet the current headwinds create uncertainty for investors.

2. CVS Health (CVS) 📊

CVS Health is performing slightly better than Walgreens but still faces challenges. Its trailing EPS has climbed by just 7% over five years, reaching $5.62. Despite ongoing investments and a cost-savings initiative aimed at cutting $2 billion in annual expenses, CVS must navigate the potential risk of stagnant growth once short-term efficiencies are maximized.

Current Concerns:

• The health services segment showed declining revenue of $42.1 billion in Q2, down 8.8% year-over-year. Thus, investors with low risk tolerance should also consider waiting on CVS.

Market Summary Table

Conclusion 🚫

Considering the underperformance and significant challenges faced by both Walgreens Boots Alliance and CVS Health, it is advisable to reassess involvement in these stocks.

Suggested Action: Sell ❌