Who's Afraid of The Big Bad Wolf?

S&P 500 Healthcare Sector GICS Level 1 Index, Bloomberg Finance L.P. 17-April-2019

The healthcare sector, that’s who. The worst performing sector in 2019 is also the sector with the highest expected revenue growth, and the second-lowest P/E ratio. Here’s an example: Anthem (ANTM) is down more than 20% from its February high but its sales are expected to grow 21% this year. The stock trades at 12 times earnings, a hefty discount to the overall market.

But don’t pay attention to the numbers, because the numbers don’t matter at the moment. The Big Bad Bernie Sanders has it in for Anthem, and every other health insurance company. You may have read my Daily Market Update today, which discusses his Medicare For All bill in the Senate. He and others like him are gearing up for the next presidential election and the stock market could pay the price. Traders are running for the exits.

Read today’s market update: Retail Sales Rebound

You may be wondering why many of your healthcare stocks aren’t doing well. The simple answer is “political risk.” This is a tough situation because it’s impossible to handicap whether and how far the socialist agenda will be advanced. It’s impossible to know whether a level-headed Democratic presidential candidate will emerge with the nomination. In the absence of clarity, these stocks will remain under pressure.

But behind the cloud of fear, there is real value in healthcare stocks. If the economy runs into trouble, the sector has a defensive quality to it. And likely as not, politics could be a temporary concern and investors will come to their senses, realizing the sector is undervalued.  

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*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.