3 Healthcare Stocks to Sell in August Before They Crash and Sink

The stock market is currently in a rotation, with traders pulling capital out of aggressive growth and technology stocks to find safety in other market sectors.

Healthcare is one of the beneficiaries of this change. People will get sick and need medical care no matter how the economy is doing. In addition, America’s aging population will inevitably lead to higher healthcare spending over time.

While the long-term case for healthcare makes sense, valuations across much of the sector are starting to spiral out of control. Especially with the upcoming presidential election, which could bring significant regulatory changes to the industry, it’s time to sell these three healthcare stocks.

Ensign Group (ENSG)

Ensign Group (NASDAQ:ENSG) provides skilled nursing, senior living, and rehabilitation services. Headquartered in California, the company has expanded to serve a number of additional markets, primarily in the Midwest and Rocky Mountain states.

Ensign faced some difficult conditions during the pandemic but has recovered to reach new all-time highs.

Traders may be overestimating themselves. ENSG stock has risen more than 40% in the past year, including a big move this summer. That has pushed the stock to more than 25 times expected earnings.

Traditionally, healthcare stocks have traded at low prices because of significant risks related to labor costs, government regulation, and reimbursement. While Ensign is currently on a roll, ENSG stock is likely to pull back once sentiment returns to more realism, making it one of the healthcare stocks to sell.

Eli Lilly (LLY)

Eli Lilly (NYSE:LLY) is one of the world’s largest pharmaceutical companies. It has long been known for its cancer and immunology drugs.

However, LLY stock has skyrocketed for another reason: weight-loss drugs. The company’s diabetes products, such as Monjuaro and Zepbound, have become absolute blockbusters. Although this drug category, GLP-1, was originally intended to treat diabetes, it has also proven to be remarkably effective in fighting obesity.

In short, Eli Lilly’s revenues have skyrocketed, from $25 billion in 2020 to an estimated $43 billion in 2024. Analysts expect a further 23% increase in 2025. This is undoubtedly a solid development.

However, LLY stock is up around 70% in the last 12 months and has gained over 600% in the last five years. This is, of course, a far larger price move than the company’s fundamentals.

As a result, shares now shockingly trade at 55 times forward earnings. This type of valuation is almost never favorable for a healthcare stock.

McKesson (MCK)

McKesson (NYSE:MCK) is one of America’s three leading drug distribution companies. These companies act as an interface between pharmaceutical companies, pharmacies and insurers and form the drug supply chain.

These are companies with exceptionally low profit margins that only generate a few percent profit despite annual sales of several hundred billion dollars.

Investors are currently enthusiastic about McKesson’s future prospects. The company is benefiting from the boom in GLP-1 drugs and is achieving strong sales growth.

But the future outlook is bleak. Politicians are looking for ways to reduce drug costs, which could hit McKesson’s business model hard, especially in an election year. A shift to mail-order pharmacies could also slow growth.

MCK stock has risen 45% over the past 12 months, well above its fair value. Morningstar’s Keonhee Kim believes the stock is now worth as little as $460 per share, as opposed to today’s price of $615.

As of the publication date, Ian Bezek had no position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.

At the time of publication, the responsible editor had neither directly nor
indirectly) positions in the securities mentioned in this article.