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3 Reasons to Buy Healthcare Stocks in the Current Market Environment
Tech's Red Hot Start
Thus far in 2023, the tech sector is the undisputed winner in terms of performance. The Nasdaq 100 ETFwas up a surprising 20% in the first quarter despite the fact that there were regional banking woes and weakness exhibited in small-cap stocks. Year-to-date, tech stocks have surged, with chip leader Nvidia higher by a mind-blowing 82.4%.
Too Far, Too Fast
Despite the stellar performance in tech, and specifically chip stocks, there may be better times to jump onboard. While the price trends remain strong and show little signs of slowing, there are a few key reasons investors may want to look beyond tech, including:
Drastically overbought levels in leading stocks: Nvidia, for example, flashed its highest Relative Strength Index (RSI) reading in more than a year. Though overbought can become more overbought, the risk-reward is no longer favorable at the current levels.
Pullbacks in high beta names can be painful: A good way for investors to think about the 50-day moving is by comparing it to a rubber band. When a stock gets too stretched from the 50-day moving average, it tends to revert back by either moving sideways or in some cases snapping back hard.
High correlations: Birds of a feather tend to flock together. While tech has been the strongest sector, the laws of gravity suggest it will pull back at some point. Having one or two stocks pull back can be manageable but five or more can cause headaches. Since tech stocks are highly correlated, it is best not to be overexposed to them at extended levels.
Where can investors look outside of tech?
One area showing relative price strength this week is healthcare. Healthcare-related stocks such as United Healthcare, Merck, Pfizer and Intuitive Surgical stuck out like a sore thumb on Wednesday by gaining more than a percent while the major indices gave up more than a percent.
Why Healthcare?
Beyond stellar relative price strength, below are 3 reasons why you should consider healthcare stocks in the current market environment:
Defensive in Nature: No matter what is happening in the broader economy, people's number one priority is their health. The demand for healthcare products is inelastic, meaning regardless of what happens to their income, healthcare is a "staple".
Financial Health: Unlike C3.ai and many other speculative, "risk-on" companies, large-cap healthcare providers have strong balance sheets chock full of cash.
Growing Demand: The overall population is aging, led by the "baby boomer" generation. As more of the population ages, demand for healthcare products and services will likely increase.
Bottom Line
Healthcare stocks are currently providing investors an attractive way to "counterbalance" a portfolio overexposed to tech. In general, healthcare stocks have lower betas, strong balance sheets, and are defensive in nature. With tech stocks extended and banking stocks vulnerable, healthcare stocks may be an attractive choice for investors.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Nvidia, United Healthcare, Merck, Pfizer and Intuitive Surgical
For Immediate Release
Chicago, IL – April 10, 2023 – Today, Zacks Investment Ideas feature highlights Nvidia (NVDA - Free Report) , United Healthcare (UNH - Free Report) , Merck (MRK - Free Report) , Pfizer (PFE - Free Report) and Intuitive Surgical (ISRG - Free Report) .
3 Reasons to Buy Healthcare Stocks in the Current Market Environment
Tech's Red Hot Start
Thus far in 2023, the tech sector is the undisputed winner in terms of performance. The Nasdaq 100 ETFwas up a surprising 20% in the first quarter despite the fact that there were regional banking woes and weakness exhibited in small-cap stocks. Year-to-date, tech stocks have surged, with chip leader Nvidia higher by a mind-blowing 82.4%.
Too Far, Too Fast
Despite the stellar performance in tech, and specifically chip stocks, there may be better times to jump onboard. While the price trends remain strong and show little signs of slowing, there are a few key reasons investors may want to look beyond tech, including:
Drastically overbought levels in leading stocks: Nvidia, for example, flashed its highest Relative Strength Index (RSI) reading in more than a year. Though overbought can become more overbought, the risk-reward is no longer favorable at the current levels.
Pullbacks in high beta names can be painful: A good way for investors to think about the 50-day moving is by comparing it to a rubber band. When a stock gets too stretched from the 50-day moving average, it tends to revert back by either moving sideways or in some cases snapping back hard.
High correlations: Birds of a feather tend to flock together. While tech has been the strongest sector, the laws of gravity suggest it will pull back at some point. Having one or two stocks pull back can be manageable but five or more can cause headaches. Since tech stocks are highly correlated, it is best not to be overexposed to them at extended levels.
Where can investors look outside of tech?
One area showing relative price strength this week is healthcare. Healthcare-related stocks such as United Healthcare, Merck, Pfizer and Intuitive Surgical stuck out like a sore thumb on Wednesday by gaining more than a percent while the major indices gave up more than a percent.
Why Healthcare?
Beyond stellar relative price strength, below are 3 reasons why you should consider healthcare stocks in the current market environment:
Bottom Line
Healthcare stocks are currently providing investors an attractive way to "counterbalance" a portfolio overexposed to tech. In general, healthcare stocks have lower betas, strong balance sheets, and are defensive in nature. With tech stocks extended and banking stocks vulnerable, healthcare stocks may be an attractive choice for investors.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.