This year, March-April period may be jinxed for the broader market hurt by a tech crash and trade war fears between China and the United States. While the tech crash has eased, U.S.-China trade war fears seem to have reached its optimum level to start Q2. Thus, some value and safer picks are best bets at the current level. And what can be a better pick than healthcare ETFs?
Healthcare stocks are seen as relatively defensive and can provide safety to one’s portfolio during market downturns, like we have seen this year. This makes the healthcare sector look better this World Health Day on Apr 7.
While ebbing fears related to price gouging, a flurry of positive clinical trials, increasing health care spending and decent valuation are the wind beneath the wings, tax cuts and an uptick in M&A are the special favorable factors this year.
If these were not enough, tax reform is going to prove to be a big boon to the sector. Per an article published on Reuters, domestically geared healthcare companies that focus on services are likely to benefit from the lower tax rate and generate superior cash flows. These companies have limited international exposure and considerable capital expenditures.
Plus, Mizuho Securities indicated that “hospital operator Universal Health Services Inc, lab-testing company Quest Diagnostics Inc and drug wholesaler Cardinal Health Inc are among the service companies” are poised to benefit (read: Tax Bill: What ETF Investors Need to Know).
Many large drugmakers hold a huge overseas cash balance and a one-time repatriation tax would help them to bring back cash stacked abroad. This in turn could boost more dividend payments or cash repurchase activities.
The U.S. healthcare supply chain is consolidating fast, with deals across the industry ranging from insurers, pharmacies to drug distributors. Global M&A activity hit a seventeen-year-record high in the first quarter of 2018 on jumbo U.S. health care deals. Amazon's foray into pharmaceuticals and the Cigna/Express Scripts transaction in Q1 deserve a mention in this context.
According to an article published on Bloomberg, smaller insurers like WellCare Health Plans Inc. (WCG - Free Report) , Centene Corp. (CNC - Free Report) , Molina Healthcare Inc. (MOH - Free Report) and Obamacare-focused startup Oscar Insurance Corp. appear to be lucrative acquisition targets now.
ETFs in Focus
We thus highlight three top-ranked healthcare ETFs and stocks on the occasion of World Health Day with which investors can boost the immunity of their portfolio (see all Health Care ETFs here).
PowerShares S&P SmallCap Health Care Portfolio (PSCH - Free Report)
The small-cap fund has a keen focus on Healthcare Equipment, Pharmaceuticals Suppliers and Providers & Services, which account for about 75% of the portfolio. The Zacks Rank #2 (Buy) fund charges 29 bps in fees.
SPDR S&P Health Care Services ETF (XHS - Free Report)
The product gives exposure to sub-industries including Health Care Distributors, Health Care Facilities, Health Care Services, and Managed Health Care. The Zacks Rank #2 fund charges 35 bps in fees (read: Cigna to Buy Express Scripts: Healthcare ETFs in Focus).
iShares U.S. Healthcare Providers ETF (IHF - Free Report)
The fund offers exposure to Managed Health Care (50.2%), Health Care Services (26.7%) and Health Care Facilities (18.4%). The fund charges 44 bps in fees. The fund has a Zacks ETF Rank #1 (Strong Buy).
Stocks in Focus
Enanta Pharmaceuticals Inc. (ENTA - Free Report)
The Zacks Rank #1 company is a biotechnology company, which is in the research and development of molecule drugs for the treatment of diseases like hepatitis C virus, respiratory tract infections, intravenous and oral treatments.
The Zacks Rank #1 company manufactures and markets portable blood analysis systems that are used in medical specialties in human or veterinary patient care.
CONMED Corporation (CNMD - Free Report)
The Zacks Rank #2 company is a medical technology company that provides surgical devices and equipment for minimally invasive procedures.
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