"Buying the dip" can be a double-edged sword for investors. Sometimes they can seize the opportunity by purchasing an oversold stock, but other times, that stock is trending lower for a good reason (and just might stay there). The latter can happen even among stocks in so-called "defensive" sectors like healthcare.
With the three healthcare stocks featured below, any "buying the dip" in them today could prove to be a regretful mistake in hindsight.
1. Moderna
Moderna (MRNA 4.81%), a longtime biotech start-up, became a highly profitable drug company in 2021 and 2022, when Spikevax, its COVID-19 vaccine, was in high demand due to the pandemic. In both those years, additional revenue and earnings were in the billions.
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Since then, however, COVID-19 vaccine demand dropped dramatically, and revenue has fallen significantly. Last quarter, Moderna's total sales totaled just $142 million. Meanwhile, the company continues to invest heavily into the development of other mRNA-based medicines, but these costly efforts have yet to produce Moderna's next blockbuster drug.
Givern these circumstances, it's not surprising that share prices have fallen by around 35% year to date, and by around 95% from their all-time highs set in 2021. Unless Moderna unveils a positive surprise when the company next announces earnings on Nov. 6, shares could experience further downward price pressure.
2. Novo Nordisk
Novo Nordisk (NVO 2.60%) once had first-mover advantage when it came to GLP-1 therapies, but competitors like Eli Lilly have since grabbed significant market share. As a result, forecasts call for this company, the manufacturer of Ozempic and Zepbound, to experience a slowdown in earnings growth this year, as well as in 2026.
While earnings per share increased by 22% in 2024, sell-side analyst estimates say that earnings will only increase 3.8% this year, and by 4.8% in 2026. Worse yet, recent remarks from President Donald Trump regarding GLP-1 prices could mean even greater disappointment with future earnings.
Trading at a forward P/E ratio of 14, Novo Nordisk might look like a "cheaper way" to play the GLP-1 trend, given that Eli Lilly trades for 27 times forward earnings. However, relative to growth, Novo Nordisk's valuation isn't justified, and it may be somewhat inflated, especially if governmental pressure to lower GLP-1 prices does indeed start to affect profitability and growth.
3. UnitedHealth Group
UnitedHealth Group (UNH 2.17%), once a Wall Street darling, has experienced tragedy, controversy, and headwinds like rising costs over the past year. This has led to a 37% price decline for shares in America's largest health insurance company.
Back in August, news of legendary investor Warren Buffett's Berkshire Hathaway making a $1.5 billion investment in UnitedHealth led to a partial price rebound for shares. However, this "Buffett boost" could ultimately prove to be short-lived. UnitedHealth next reports earnings later this month, on Oct. 28.
Following other developments, such as the company's reestablishment of full-year guidance, expectations now run high that the worst is over. Still, as margin pressures persist, and the company remains under investigation from the U.S. Department of Justice (DOJ) investigation, there's still room for some unexpected bad news, which may result in a pullback for shares.
