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Healthcare: An Essential Sector (3 Stocks to Buy Ahead of Earnings)
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Economic Concerns Remain Despite Market Recovery
Though equities markets have recovered thus far in 2023, many economic and macro concerns remain. Geopolitically speaking, the war in Ukraine persists with no end in sight (and potential escalations elsewhere, like Taiwan). Inflation has slowed; however, there are some signs that it may rear its ugly head again. Used car prices, which are often looked at as a leading indicator for inflation, began moving up again in March for the first time in seven months.
Unforeseen Rate Hiking Problems
Meanwhile, the Federal Reserve’s rate-hiking crusade against inflation has caused unanticipated problems in the regional banking sector. The SPDR Regional Bank ETF ((KRE - Free Report) ) has been under immense pressure. Silicon Valley Bank has already gone bust, and fellow regional bank First Republic Bank () is on the tipping point – down more than 90% year-to-date, with the deposits dropping rapidly.
Image Source: Zacks Investment Research
Technology is the Leader but is Extended
Conversely, technology and the Nasdaq 100 ETF ((QQQ - Free Report) ) have been on a tear. Mega-cap tech stocks such as Apple ((AAPL - Free Report) ), Microsoft ((MSFT - Free Report) ), and Nvidia ((NVDA - Free Report) ) have been on a tear. So far this year, NVDA is up a mind-blowing 85%!
Image Source: Zacks Investment Research
That said, many stocks, such as Apple and Microsoft, have yet to tag their 50-day moving averages since breaking out earlier in the year.
Image Source: Zacks Investment Research
The 50-day tends to act similar to a rubber band. When stocks get stretched too far in one direction, they tend to snap back in the other direction. Couple that with the fact that we are heading into the historically weak period of May, and investors overleveraged in tech stocks may be in for some pain. In pre-election years, like the one we are in now, May tends to be the second weakest month of the year.
Where to Hide?
Like anything in the stock market, a tech pullback is not a foregone conclusion. However, investors will be best served to diversify their portfolios so that they can withstand any potential volatility in the market. Due to the regional banking crisis, many banking and small cap stocks are vulnerable. Meanwhile, investors likely do not want to chase tech here.
An Essential Sector
One intriguing avenue to take is to look at the healthcare sector. The most basic needs of human beings are food, water, shelter, and healthcare. Healthcare is a sector that has stood the test of time and will undoubtedly continue to into the future. Below are some reasons healthcare companies tend to do well in any economy:
Healthcare is a necessity: As I mentioned above, healthcare is a non-negotiable. If you are sick, you will seek healthcare.
Defensive sector: Because healthcare is a necessity, savvy investors understand they can rely on healthcare stocks for steady and stable growth. Unlike other sectors, healthcare stocks will fluctuate less based on the overall economy.
An Aging Population: As the “baby boomer” generation ages, demand for healthcare services will inevitably increase, leading to a surge in healthcare expenditures.
Stocks to Watch
Merck ((MRK - Free Report) ) has one of the deepest pipelines in the biotech space. The company boasts more than six blockbuster drugs, including Keytruda, which is approved for treating several types of cancer. Through its in-house pipeline and strategic acquisitions over the years, the company has one of the best growth track records of any company in the market, let alone the healthcare sector. Below is a chart of the company’s EPS growth going back to the 90s.
Image Source: Zacks Investment Research
Beyond its impressive pipeline and earnings track record, MRK has an immaculate balance sheet. The company has over $13 billion in cash on hand and only $1.9 billion in short-term debt. MRK will report earnings Thursday.
DexCom ((DXCM - Free Report) ) develops continuous glucose monitoring systems for diabetes patients. As the number of diabetes patients in the United States and around the world continues to grow, DXCM should be a primary beneficiary. DXCM is setting up in an attractive price pattern and is attempting to break out ahead of its earnings report on Thursday.
Image Source: Zacks Investment Research
Shockwave Medical ((SWAV - Free Report) ) is a medical device company that develops products for patients with cardiovascular disease. SWAV is one of the fastest-growing companies in the healthcare space. Last quarter, SWAV grew year-over-year EPS 232% on revenue growth of 71%.
Image Source: Zacks Investment Research
Other healthcare stocks, such as Intuitive Surgical ((ISRG - Free Report) ), Medtronics ((MDT - Free Report) ), and Stryker ((SYK - Free Report) ), are also very strong – illustrating the immense investor appetite for this sector currently.
Conclusion
Healthcare stocks are an excellent place to look in the current market environment. The sector tends to do well in almost any economy due to the aging population, the necessity of the space, and the defensive nature of the industry, which is attractive to investors.
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Healthcare: An Essential Sector (3 Stocks to Buy Ahead of Earnings)
Economic Concerns Remain Despite Market Recovery
Though equities markets have recovered thus far in 2023, many economic and macro concerns remain. Geopolitically speaking, the war in Ukraine persists with no end in sight (and potential escalations elsewhere, like Taiwan). Inflation has slowed; however, there are some signs that it may rear its ugly head again. Used car prices, which are often looked at as a leading indicator for inflation, began moving up again in March for the first time in seven months.
Unforeseen Rate Hiking Problems
Meanwhile, the Federal Reserve’s rate-hiking crusade against inflation has caused unanticipated problems in the regional banking sector. The SPDR Regional Bank ETF ((KRE - Free Report) ) has been under immense pressure. Silicon Valley Bank has already gone bust, and fellow regional bank First Republic Bank () is on the tipping point – down more than 90% year-to-date, with the deposits dropping rapidly.
Image Source: Zacks Investment Research
Technology is the Leader but is Extended
Conversely, technology and the Nasdaq 100 ETF ((QQQ - Free Report) ) have been on a tear. Mega-cap tech stocks such as Apple ((AAPL - Free Report) ), Microsoft ((MSFT - Free Report) ), and Nvidia ((NVDA - Free Report) ) have been on a tear. So far this year, NVDA is up a mind-blowing 85%!
Image Source: Zacks Investment Research
That said, many stocks, such as Apple and Microsoft, have yet to tag their 50-day moving averages since breaking out earlier in the year.
Image Source: Zacks Investment Research
The 50-day tends to act similar to a rubber band. When stocks get stretched too far in one direction, they tend to snap back in the other direction. Couple that with the fact that we are heading into the historically weak period of May, and investors overleveraged in tech stocks may be in for some pain. In pre-election years, like the one we are in now, May tends to be the second weakest month of the year.
Where to Hide?
Like anything in the stock market, a tech pullback is not a foregone conclusion. However, investors will be best served to diversify their portfolios so that they can withstand any potential volatility in the market. Due to the regional banking crisis, many banking and small cap stocks are vulnerable. Meanwhile, investors likely do not want to chase tech here.
An Essential Sector
One intriguing avenue to take is to look at the healthcare sector. The most basic needs of human beings are food, water, shelter, and healthcare. Healthcare is a sector that has stood the test of time and will undoubtedly continue to into the future. Below are some reasons healthcare companies tend to do well in any economy:
Healthcare is a necessity: As I mentioned above, healthcare is a non-negotiable. If you are sick, you will seek healthcare.
Defensive sector: Because healthcare is a necessity, savvy investors understand they can rely on healthcare stocks for steady and stable growth. Unlike other sectors, healthcare stocks will fluctuate less based on the overall economy.
An Aging Population: As the “baby boomer” generation ages, demand for healthcare services will inevitably increase, leading to a surge in healthcare expenditures.
Stocks to Watch
Merck ((MRK - Free Report) ) has one of the deepest pipelines in the biotech space. The company boasts more than six blockbuster drugs, including Keytruda, which is approved for treating several types of cancer. Through its in-house pipeline and strategic acquisitions over the years, the company has one of the best growth track records of any company in the market, let alone the healthcare sector. Below is a chart of the company’s EPS growth going back to the 90s.
Image Source: Zacks Investment Research
Beyond its impressive pipeline and earnings track record, MRK has an immaculate balance sheet. The company has over $13 billion in cash on hand and only $1.9 billion in short-term debt. MRK will report earnings Thursday.
DexCom ((DXCM - Free Report) ) develops continuous glucose monitoring systems for diabetes patients. As the number of diabetes patients in the United States and around the world continues to grow, DXCM should be a primary beneficiary. DXCM is setting up in an attractive price pattern and is attempting to break out ahead of its earnings report on Thursday.
Image Source: Zacks Investment Research
Shockwave Medical ((SWAV - Free Report) ) is a medical device company that develops products for patients with cardiovascular disease. SWAV is one of the fastest-growing companies in the healthcare space. Last quarter, SWAV grew year-over-year EPS 232% on revenue growth of 71%.
Image Source: Zacks Investment Research
Other healthcare stocks, such as Intuitive Surgical ((ISRG - Free Report) ), Medtronics ((MDT - Free Report) ), and Stryker ((SYK - Free Report) ), are also very strong – illustrating the immense investor appetite for this sector currently.
Conclusion
Healthcare stocks are an excellent place to look in the current market environment. The sector tends to do well in almost any economy due to the aging population, the necessity of the space, and the defensive nature of the industry, which is attractive to investors.