By Lewis Krauskopf
NEW YORK, July 13 (Reuters) - Shares of U.S. healthcare companies are gaining fa... عرض المزيدBy Lewis Krauskopf
NEW YORK, July 13 (Reuters) - Shares of U.S. healthcare companies are gaining favor as investors bank on their ability to weather rocky economic times and the stocks look more reasonably valued than other defensive sectors.
Healthcare has been the top-performing S&P 500 sector over
the past month, rising nearly 3% while the broader market has fallen modestly.
The group has fallen 8.7% so far this year, less severe than the
nearly 20% drop for the benchmark S&P 500 overall.
Strategists at Goldman Sachs, Morgan Stanley and BofA Global
Research are among those favoring the healthcare
sector, given that the companies' businesses are expected to hold up better than others should the economy
face a downturn.
"We feel like it is one of the last opportunities to play defense at a reasonable price," said Walter Todd, chief investment officer at Greenwood Capital
in South Carolina.
Greenwood is overweight healthcare stocks in its large-cap portfolios including
shares of Johnson & Johnson, Thermo Fisher Scientific
and Pfizer Inc.
How healthcare companies are performing will become more clear in the coming days
as second-quarter reports roll in, starting on Friday with UnitedHealth Group Inc, the largest U.S.
healthcare company by market value.
Earnings in the healthcare sector - which includes large drugmakers, medical equipment companies, health
insurers and biotech firms - have outperformed in recent recessionary periods.
That makes them an attractive target for investors looking for
assets that can weather a potential downturn, as recession worries grow amid aggressive monetary policy tightening
from the Federal Reserve.
For example, while overall S&P 500 earnings fell for nine straight
quarters during the Great Recession in 2007-2009, the
healthcare sector posted earnings growth in those periods,
according to Refinitiv IBES data.
Over the last 25 years, earnings per share for
the sector have increased nearly 10% annually compared with
6.6% annual growth for the S&P 500, while producing "much more consistent annual growth relative to the broader market,"
according to Eric Potoker, U.S. healthcare equity strategist in the
CIO office of UBS Global Wealth Management.
"If they have healthcare needs, that is usually one of the last places that people will ration," Potoker said.
Healthcare also remains relatively more attractive than other
so-called defensive stocks based on standard
valuation metrics.
Healthcare is trading at 15.7 times forward earnings
estimates against its long-term price-to-earnings average of
17.5 times, according to Refinitiv Datastream. That represents a
10% discount.
Meanwhile, other defensive sectors are trading at premiums relative to their historical valuations - with utilities at
a premium of over 30% and consumer staples at a 12% premium.
Unlike healthcare stocks, utilities and staples, at 19.4 times and 20.1 times, respectively, are also trading above the
16.1 times P/E ratio of the overall S&P 500.
"We find other traditionally defensive sectors, including utilities and staples, to be expensive relative to the broader market," Tony
DeSpirito, chief investment officer of U.S. fundamental equities at BlackRock,
said in his third-quarter equity outlook in which he described "an underappreciated opportunity in healthcare stocks."
To be sure, should investors become more upbeat about the economy,
that could lead them to leave behind healthcare shares for more cyclically sensitive stocks such
as financials or industrials.
Healthcare also for years has faced persistent investor concerns about regulatory
changes, particularly related to potential U.S. action to rein in prescription drug prices, which has created a cloud over the stocks.
In the coming months, Democrats in U.S. Congress could try to pass a drug-pricing bill, and "biopharma stocks could be volatile if legislation progresses," analysts
at SVB Securities said in a note.
(Reporting by Lewis Krauskopf in New York Editing by Ira
Iosebashvili and Matthew Lewis)
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By Lewis Krauskopf
NEW YORK, July 13 (Reuters) - Shares of U.S. healthcare companies are gaining fa... عرض المزيد