Personal health and wellness is one of the many secular tailwinds for healthcare companies. 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 12.7%. This performance was worse than the S&P 500’s 7.5% fall.

Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. Taking that into account, here are three healthcare stocks best left ignored.

Thermo Fisher (TMO)

Market Cap: $162.9 billion

With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE:TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.

Why Does TMO Fall Short?

1. 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

2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 10 percentage points

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $431 per share, Thermo Fisher trades at 18.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why TMO doesn’t pass our bar .

Surgery Partners (SGRY)

Market Cap: $2.69 billion

With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.

Why Are We Cautious About SGRY?

1. Disappointing unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy

2. 4.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Surgery Partners is trading at $20.91 per share, or 20.4x forward price-to-earnings. If you’re considering SGRY for your portfolio, see our FREE research report to learn more .

Supernus Pharmaceuticals (SUPN)

Market Cap: $1.72 billion

With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ:SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.