3 Under-the-Radar Healthcare Companies

Key Points

• The healthcare sector is massive and includes everything from major mega cap stocks to tiny firms that carry significant investment risks.
• Natera, Tenet, and Travere are three healthcare companies with a history of strong returns in the last year that also occupy a space in between these two extremes for the sector.
• These firms provide a variety of access points for investors, including diagnostics, hospital and facilities management, and therapeutics.

The healthcare sector is vast and includes everything from massive legacy companies including UnitedHealth Group Inc. NYSE: UNH and McKesson Corp. NYSE: MCK to tiny upstart pharmaceuticals firms. Investors looking to explore this sector thus have a choice about whether to focus on established companies with steadier business operations but, perhaps, less of a possibility of future growth, or on smaller firms that offer a higher-risk, higher-reward prospect.

Fortunately, there are companies that fall somewhere in between as well. And while the broader healthcare sector, as represented by the Health Care Select Sector SPDR Fund NYSEARCA: XLV, has underperformed the S&P 500 with a return of 16% this year, there are plenty of these firms that have significantly outperformed also. Three in particular worth a second look by investors include Natera Inc. NASDAQ: NTRA, Tenet Healthcare Corp. NYSE: THC, and Travere Therapeutics Inc. NASDAQ: TVTX.

Natera: Expanding Operations, Major Top-Line Growth

Natera is a genetic testing company that has recently expanded its operations to include oncology and organ health in addition to its legacy women's health business. The shift has had profoundly positive results—in the second quarter, the firm reported revenues of over $413 million, 58% above levels one year earlier, while also dramatically improving its gross margin and achieving positive cash flow of $3.3 million. Gross profit more than doubled to $243 million while losses from operations narrowed significantly to just under $44 million.

Natera's oncology business is growing quickly, as evidenced by the fact that the company processed 50% more oncology tests in the second quarter than it did a year prior. This expansion has helped to establish Natera as one of the leading genetic testing firms both in the U.S. and internationally, where its footprint also continues to grow.

Analysts view Natera with optimism, with Bernstein recently raising its price target by $10 to $135. This is the case even after the company's stock has nearly tripled in the last year and as it trades just below its 1-year high.

Tenet Healthcare: Also Branching Out, Bolstering Free Cash Flow

Tenet manages hospitals, outpatient locations, and surgery centers and, like Natera, has recently expanded its operations to build out its ambulatory care services, among other offerings. The firm is also reaping benefits from these changes—net income available to common shareholders nearly quintupled year-over-year for the latest quarter, while revenue climbed by about 1%.

Tenet's move toward ambulatory and other services helps to support its core hospital business, which posted increased adjusted EBITDA and adjusted EBITDA margin for the latest quarter, even as it also noted a 3.4% year-over-year decline in revenues in this segment.

Across its various business lines, Tenet is able to generate consistent and expanding free cash flow. In the first three quarters of 2024, the firm reported nearly $1.8 billion in free cash flow, considerably higher than the $1.0 billion in free cash flow it generated during the same period in 2023.

Travere Therapeutics: Key Kidney Disease Drug Launch

Travere is a developer of therapies for rare kidney and metabolic conditions. In the latest quarter, the company received full approval for FILSPARI, a therapy for use in patients with the kidney disease IgA nephropathy. Thanks to the successful launch of this product, Traver reported 30% improvement in net sales for FILSPARI quarter-over-quarter. This success also contributed to a 70% year-over-year increase in total revenue.

FILSPARI has additional room to grow as a key component of Travere's portfolio of therapeutics. The company has launched this product in Europe, beginning with Germany and Austria, and is expected to continue to expand distribution further afield in the coming quarters.

On the other hand, Travere may startle investors because of its recent shift to net losses of $54.8 million for the third quarter, compared to net income of $150.7 million in the prior-year quarter. However, though this shift to the negative is undesirable, it is largely due to the sale of older components of the company's portfolio in 2023.

Different Parts of the Healthcare Sector

Each of the firms on this list occupies a unique space in the healthcare sector—from a diagnostics firm to a hospital manager to a drug manufacturer. As such, each also has a unique combination of risks and potential benefits. Nonetheless, each company's share price has roughly tripled or better in the last year, and analysts remain broadly hopeful for continued growth going forward.