In November, healthcare stocks emerged as investors’ favorites. The Health Care Select Sector SPDR (XLV) gained 8.2% over last month, emerging as the leader among the S&P 500’s 11 sectors. With stocks inching close to the bear-market territory, XLV is currently down 2.4% year to date, coming in at the third place behind utilities and communication services stocks.
Rapid innovation, major advances and the United States’ ageing population have managed to sustain the popularity of healthcare stocks. Further, this is a defensive option which has caught the fancy of investors in difficult market conditions. With the economy likely to weaken and a gridlocked Congress unlikely to make major legislative changes, picking select healthcare stocks looks like a smart strategy for 2019.
2018’s Challenges Leave Sector Largely Unscathed
Several roadblocks confronted healthcare this year and most of them had to do with the Affordable Care Act (ACA). The Trump administration has been trying to replace and repeal Obamacare since it began its term. And it succeeded to some extent this year, removing the individual mandate as part of its well-received tax cuts.
The abolishment of the individual mandate led a federal judge in Texas to declare that the ACA was unconstitutional. However, the law will remain in force until the time that all appeals are exhausted. Market watchers point out that time and again, the ACA has proved hard to kill. An appeals court is likely to overturn this latest ruling.
Prospects for 2019 Remain Bright
Meanwhile, voices calling for action on overpriced drugs were heard time and time again. However, a divided Congress will likely prevent any major legislative changes in the near future. Healthcare was a key issue for Democrats during this year’s mid-term polls and their House victories illustrate its emotive power among voters.
Also, 2018 was witness to heated mergers and acquisitions activity. Aetna sealed a $70 billion merger with pharmacy major CVS Health (CVS - Free Report) . Meanwhile, Cigna (CI - Free Report) acquired Express Scripts for $54 billion.
These developments illustrate a trend which seeks to reduce healthcare costs by creating a single entity which offers both medical and drug benefits. The trend is likely to continue next year, invigorating the sector with further mergers and acquisitions activity.
Overall, 2019 is likely to be another year filled with innovations and new technologies. Players from outside the sector are also likely to step into the healthcare space. This is more than evident from the efforts of Amazon (AMZN - Free Report) , JPMorgan (JPM - Free Report) and Berkshire Hathaway (BRK.B - Free Report) to provide healthcare benefits to 1 million employees. Longer term, the venture is an attempt to enter the ever resilient $3.5 trillion healthcare industry.
As the year comes to a dismal close, the popularity of healthcare stocks among investors is likely to grow. Despite efforts to demolish the ACA, Obama’s signature healthcare law will likely remain intact. A lack of consensus on drug pricing controls is likely to prevail in the near future.
The prospects of healthcare will remain largely undimmed in 2019, thanks in no small measure to America’s ageing population. This is why it makes sense to add healthcare stocks to your portfolios for next year. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score and has delivered returns twice as much as the FAANG group in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.
Computer Programs and Systems, Inc. (CPSI - Free Report) is a provider of healthcare information technology solutions and services.
Computer Programs and Systems has a VGM Score of A. The company’s projected growth rate for the current year is 30.5%. The Zacks Consensus Estimate for the current year has improved 7.9% over the last 30 days.
BioTelemetry, Inc. (BEAT - Free Report) provides ambulatory outpatient management solutions for monitoring clinical information regarding an individual's health.
BioTelemetry has a VGM Score of B. The company’s projected growth rate for the current year is 86.1%. The Zacks Consensus Estimate for the current year has improved 0.5% over the last 30 days.
HMS Holdings Corp. (HMSY - Free Report) is a leading provider of cost containment solutions in the U.S. healthcare marketplace.
HMS Holdings has a VGM Score of B. The company’s projected growth rate for the current year is 44.2%. The Zacks Consensus Estimate for the current year has improved 1.6% over the last 30 days.
Amedisys, Inc. (AMED - Free Report) provides home health and hospice services throughout the United States to the growing chronic, co-morbid, and aging population.
Amedisys has a VGM Score of B. The company’s projected growth rate for the current year is 62%. The Zacks Consensus Estimate for the current year has improved 5% over the last 60 days.
Molina Healthcare, Inc. (MOH - Free Report) is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs.
Molina has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 25.2% over the last 60 days.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>