This article has been updated with comments from Morgan Stanley.

NEW YORK ( TheStreet) -- In the third quarter of 2015, the S&P 500 Health Care index declined sharply compared to an already steep decline in the general market.

The S&P 500 Health Care index was down 11% in the third quarter, compared with a loss of about 7% for the broader market, in what was the worst quarter for stocks in four years. In the first half of the year, S&P Health Care outpaced the S&P 500 by a whopping 15 percentage points, over the S&P 500's 1.2% increase.

The driver behind the decline in the health care sector seems to be concern that lawmakers will take on drug companies that charge high prices for their drugs by legislating price controls. 

In a research note from Morgan Stanley (MS - Get Report) , Hilary Clinton's proposed actions to take on the big health care companies are front and center. Secretary Clinton, who is now running for President, believes health care companies should be "required to reinvest in research and development, cap out-of-pocket costs for patients, allow drug importation, demand higher rebates for Medicare dual eligible, and allow Medicare to negotiate drug prices with manufacturers."

If enforced, these propositions could hurt health care companies' bottom lines.

Nonetheless, there were some good buys in the third quarter. TheStreet paired the 10 best performing health care sector stocks with TheStreet Ratings to determine whether they really are poor investments going forward.

Here are the 10 stocks in the health care sector which had the best third-quarter.

TheStreet
paired each of these tickers with TheStreet Ratings to let you know if you should buy, sell, or hold these best performing stocks. (Note: Because of TheStreet Ratings parameters, not all stocks on this list have a rating).


TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which stocks were among the best performers to date, counting down from 10 to one.

TMO Chart TMO data by YCharts
10. Thermo Fisher Scientific Inc. (TMO - Get Report)

Rating: Buy, A-
Market Cap: $48.7 billion
Year-to-date return: -5.76%

Thermo Fisher Scientific Inc. provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide.

TheStreet Ratings team rates THERMO FISHER SCIENTIFIC INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate THERMO FISHER SCIENTIFIC INC (TMO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, reasonable valuation levels, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • THERMO FISHER SCIENTIFIC INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, THERMO FISHER SCIENTIFIC INC increased its bottom line by earning $4.70 versus $3.49 in the prior year. This year, the market expects an improvement in earnings ($7.38 versus $4.70).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Life Sciences Tools & Services industry. The net income increased by 83.7% when compared to the same quarter one year prior, rising from $278.50 million to $511.60 million.
  • After a year of stock price fluctuations, the net result is that TMO's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that TMO's debt-to-equity ratio is low, the quick ratio, which is currently 0.56, displays a potential problem in covering short-term cash needs.
  • You can view the full analysis from the report here: TMO


ISRG Chart ISRG data by YCharts
9. Intuitive Surgical, Inc. (ISRG - Get Report)

Rating: Buy, B
Market Cap: $17 billion
Year-to-date return: -5.14%

Intuitive Surgical, Inc. designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories in the United States, Europe, and Asia.

TheStreet Ratings team rates INTUITIVE SURGICAL INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate INTUITIVE SURGICAL INC (ISRG) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 29.3% when compared to the same quarter one year prior, rising from $104.00 million to $134.50 million.
  • ISRG's revenue growth trails the industry average of 34.4%. Since the same quarter one year prior, revenues rose by 14.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ISRG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.99, which clearly demonstrates the ability to cover short-term cash needs.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • The gross profit margin for INTUITIVE SURGICAL INC is rather high; currently it is at 69.54%. Regardless of ISRG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ISRG's net profit margin of 22.94% significantly outperformed against the industry.
  • You can view the full analysis from the report here: ISRG


UNH Chart UNH data by YCharts
8. UnitedHealth Group Incorporated (UNH - Get Report)
Rating: Buy, A
Market Cap: $110.6 billion
Year-to-date return: -4.91%

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States.

TheStreet Ratings team rates UNITEDHEALTH GROUP INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

We rate UNITEDHEALTH GROUP INC (UNH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, increase in net income and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UNH's revenue growth has slightly outpaced the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 11.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 37.27% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, UNH should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • UNITEDHEALTH GROUP INC has improved earnings per share by 15.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, UNITEDHEALTH GROUP INC increased its bottom line by earning $5.70 versus $5.50 in the prior year. This year, the market expects an improvement in earnings ($6.32 versus $5.70).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Health Care Providers & Services industry average. The net income increased by 12.6% when compared to the same quarter one year prior, going from $1,408.00 million to $1,585.00 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, UNITEDHEALTH GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: UNH


JNJ Chart JNJ data by YCharts
7. Johnson & Johnson (JNJ - Get Report)

Rating: Buy, A-
Market Cap: $258.5 billion
Year-to-date return: -4.22%


Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates in three segments: Consumer, Pharmaceutical, and Medical Devices.

TheStreet Ratings team rates JOHNSON & JOHNSON as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate JOHNSON & JOHNSON (JNJ) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels, expanding profit margins and growth in earnings per share. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JNJ's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, JNJ has a quick ratio of 1.87, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Pharmaceuticals industry and the overall market, JOHNSON & JOHNSON's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for JOHNSON & JOHNSON is currently very high, coming in at 74.88%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.38% significantly outperformed against the industry average.
  • JOHNSON & JOHNSON has improved earnings per share by 6.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, JOHNSON & JOHNSON increased its bottom line by earning $5.70 versus $4.82 in the prior year. This year, the market expects an improvement in earnings ($6.16 versus $5.70).
  • You can view the full analysis from the report here: JNJ
Must Read: JPMorgan Picks 7 Pharmaceutical Stocks to Buy (or Hold) in Wake of Interest Rates Hike


XRAY Chart XRAY data by YCharts
6. DENTSPLY International Inc. (XRAY - Get Report)

Rating: Buy, A-
Market Cap: $7.1 billion
Year-to-date return: -1.90%

DENTSPLY International Inc. designs, develops, manufactures, and markets various consumable dental products for the professional dental market in the United States and internationally.

TheStreet Ratings team rates DENTSPLY INTERNATL INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate DENTSPLY INTERNATL INC (XRAY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for DENTSPLY INTERNATL INC is rather high; currently it is at 61.61%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.31% trails the industry average.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DENTSPLY INTERNATL INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DENTSPLY INTERNATL INC increased its bottom line by earning $2.23 versus $2.15 in the prior year. This year, the market expects an improvement in earnings ($2.59 versus $2.23).
  • The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.89 is somewhat weak and could be cause for future problems.
  • You can view the full analysis from the report here: XRAY


SYK Chart SYK data by YCharts
5. Stryker Corporation (SYK - Get Report)
Rating: Buy, A
Market Cap: $35.4 billion
Year-to-date return: -1.54%

Stryker Corporation, together with its subsidiaries, operates as a medical technology company. The company operates through three segments: Orthopaedics, MedSurg, and Neurotechnology and Spine.

TheStreet Ratings team rates STRYKER CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

We rate STRYKER CORP (SYK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 206.3% when compared to the same quarter one year prior, rising from $128.00 million to $392.00 million.
  • The revenue growth significantly trails the industry average of 34.4%. Since the same quarter one year prior, revenues slightly increased by 2.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, SYK has a quick ratio of 1.55, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for STRYKER CORP is rather high; currently it is at 68.13%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.11% is above that of the industry average.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: SYK


BXLT Chart BXLT data by YCharts
4. Baxalta Incorporated (BXLT)
Rating: N/A
Market Cap: $21.4 billion
Year-to-date return: -1.35%



EW Chart EW data by YCharts
3. Edwards Lifesciences Corporation (EW - Get Report)

Rating: Buy, B
Market Cap: $15.3 billion
Year-to-date return: -0.18%

Edwards Lifesciences Corporation provides products and technologies to treat structural heart disease and critically ill patients worldwide.

TheStreet Ratings team rates EDWARDS LIFESCIENCES CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate EDWARDS LIFESCIENCES CORP (EW) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, EW's share price has jumped by 35.46%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, EW should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • EW's revenue growth trails the industry average of 34.4%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • EW's debt-to-equity ratio is very low at 0.26 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.95, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for EDWARDS LIFESCIENCES CORP is currently very high, coming in at 77.01%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.27% is above that of the industry average.
  • EDWARDS LIFESCIENCES CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, EDWARDS LIFESCIENCES CORP increased its bottom line by earning $7.52 versus $3.41 in the prior year. For the next year, the market is expecting a contraction of 41.8% in earnings ($4.38 versus $7.52).
  • You can view the full analysis from the report here: EW


LLY Chart LLY data by YCharts
2. Eli Lilly and Company (LLY - Get Report)
Rating: Buy, B
Market Cap: $88.6 billion
Year-to-date return: 0.24%

Eli Lilly and Company discovers, develops, manufactures, and sells pharmaceutical products worldwide. It operates through two segments, Human Pharmaceutical Products and Animal Health Products.

TheStreet Ratings team rates LILLY (ELI) & CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate LILLY (ELI) & CO (LLY) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LLY's revenue growth has slightly outpaced the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 0.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.01, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for LILLY (ELI) & CO is currently very high, coming in at 84.30%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 12.06% trails the industry average.
  • Compared to its closing price of one year ago, LLY's share price has jumped by 28.94%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • LILLY (ELI) & CO's earnings per share declined by 17.6% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LILLY (ELI) & CO reported lower earnings of $2.23 versus $4.31 in the prior year. This year, the market expects an improvement in earnings ($3.28 versus $2.23).
  • You can view the full analysis from the report here: LLY


BCR Chart BCR data by YCharts
1. C. R. Bard, Inc. (BCR)

Rating: Hold, C+
Market Cap: $13.8 billion
Year-to-date return: 9.14%

C. R. Bard, Inc. designs, manufactures, packages, distributes, and sells medical, surgical, diagnostic, and patient care devices worldwide.

TheStreet Ratings team rates BARD (C.R.) INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate BARD (C.R.) INC (BCR) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 54.2% when compared to the same quarter one year prior, rising from -$119.40 million to -$54.70 million.
  • The revenue growth significantly trails the industry average of 34.4%. Since the same quarter one year prior, revenues slightly increased by 4.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • BARD (C.R.) INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BARD (C.R.) INC reported lower earnings of $3.68 versus $8.48 in the prior year. This year, the market expects an improvement in earnings ($9.08 versus $3.68).
  • Powered by its strong earnings growth of 53.45% and other important driving factors, this stock has surged by 34.13% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market on the basis of return on equity, BARD (C.R.) INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • You can view the full analysis from the report here: BCR