Why Health Care Stocks Can Rebound Despite 2020 Election Turmoil

Health

Image result for Why Health Care Stocks Can Rebound Despite 2020 Election TurmoilHealth care stocks, one of the worst performing sectors, could be poised to outperform even as election turmoil heats up next year. A rebound would be a major change from a dismal year thus far in 2019. Health care mutual funds and ETFs have seen $13 billion in net outflows through September, compared to $1.5 billion in inflows through all of 2018, according to Morningstar Direct data, per the Wall Street Journal.

Now, better-than-expected earnings from both UnitedHealth Group Inc. (UNH) and Johnson & Johnson (JNJ) have highlighted health care companies’ strong earnings amid a dim overall corporate profit outlook. The stocks of both companies soared in the wake of their latest earnings releases and have brightened the outlook for the sector, partly offsetting fears about regulation and some Democratic presidential candidates’ calls for dramatic government involvement in the U.S. health care industry, as outlined in another Wall Street Journal report. The sector’s outlook also could brighten as the Trump administration continues to make steps in an effort to dismantle Obamacare.

Health care companies have strong underlying businesses, a factor becoming more attractive in the market as investors shift away from “riskier” assets and more expensive, loss-making companies. And from a valuation perspective, the weakness in the health care space has led many investors to buy health care stocks, which are selling at discounted prices. Health care stocks in the S&P 500 trade at about 14.4 times future earnings, behind 16.8 times for the broader index and 19.6 times for tech, per the Journal, citing FactSet. Hedge funds have taken advantage of health care’s weakness, which accounted for 18% of the net weight of their assets through June 30, the largest sector exposure, per Goldman Sachs data.

What’s Next

To be sure, the industry still faces a myriad of threats. Next week, a highly anticipated trial over opioids will begin in Ohio, illuminating the threat of multi-billion dollar judgments or costly settlements for a large number of players. Drug makers also face a federal investigation over price fixing allegations.

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Written by Loknath Das