NEW YORK- Shares of US 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 percent while the broader market has fallen modestly. The group has fallen 8.7 percent so far this year, less severe than the nearly 20 percentdrop 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 US 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 percent annually compared with 6.6 percent annual growth for the S&P 500, while producing “much more consistent annual growth relative to the broader market,” according to Eric Potoker, US healthcare equity strategist in the CIO office of UBS Global Wealth Management. – Reuters
