Wall Street has gaining on optimism surrounding the signing of a "phase one" trade deal between the United States and China. The S&P 500, in fact, crossed the 3,100 mark this week while the Nasdaq Composite Index breezed past 8,500 (read: Risk-On Sentiments Are Back: ETFs to Play).
Though there is a certain level of lingering uncertainty about how the deal will shape up, causing a safe-haven rally occasionally, some sectors have been steady irrespective of the geopolitical scenario. Healthcare is among the few.
Let’s dig a little deeper.
What’s Driving Healthcare?
Per the Earnings Trends issued on Nov 13, total earnings of 95.1% of the entire healthcare market capitalization in the S&P 500 that has reported so far are up 7.1% on revenue growth of 7.4%. The earnings and revenue growth rates are the fifth highest among the 16 Zacks classified sectors. Meanwhile, the blended beat ratio of 70.6% is the third highest.
There are about 13 industries in the broader medical sector, out of which 12 sport a favorable Zacks Rank. Below we highlight three key industries.
Medical – Drugs belongs to a favorable Zacks industry (placed at the top 20% of 250+ industries). A total of 117 companies reported this season of which 64% beat estimates and 5% met the same. Shares of the Medical – Drugs industry can be availed at 17.43x forward P/E ratio against the S&P 500 ETF IVV’s P/E multiple of 18.64x. Though a low P/E is not indicative of the stock’s future performance, cheaper valuation is always good news. The projected EPS growth rate of the sector is 9.72% versus 5.66% of IVV. The debt-to-equity ratio of the industry (0.2x) is much lower than 0.72x of IVV.
Large-Cap Pharmaceuticals also hails from a favorable Zacks industry (positioned at the top 28%). Only 12 companies reported this season, all of which beat estimates. The industry has a forward P/E ratio of 14.73x, which reflects its undervalued status. The debt-to-equity ratio of the industry (0.68x) is in line with that of the S&P 500.
Medical - Biomedical And Genetics also comes from a favorable Zacks industry (top 20%). About 275 companies reported this season, of which 59% surpassed estimates while 5% met the mark. Though the forward P/E ratio of 25.19x is pretty higher in comparison to IVV, the projected EPS growth rate is also higher (10.93%) than the S&P 500 (5.66%).
Apart from favorable financials and valuations, the sector is brimming with good news starting from a wave of merger and acquisitions to the release of upbeat drug data. Recently, Biogen (BIIB - Free Report) spread optimism in the healthcare sector following its Alzheimer’s treatment report. The biotech company decided to go ahead with the approval of aducanumab, a treatment for early Alzheimer’s diseases, after the drug met the primary endpoint of a Phase 3 Emerge study.
Investors should also note that the healthcare sector offers a slightly defensive approach and thus could be a good bet if there is any uncertainty regarding the trade deal.
ETFs & Stocks in Focus
Against this backdrop, we highlight a few top-performing healthcare ETFs and stocks in the past week (as of Nov 14, 2019).
Stocks in Focus
Clovis Oncology Inc. (CLVS - Free Report) — Up 51.4% past week
Forty Seven Inc. (FTSV - Free Report) — Up 41.7%
Proteostasis Therapeutics Inc. (PTI - Free Report) — Up 40.8%
Aquestive Therapeutics Inc. (AQST - Free Report) — Up 35.7%
DexCom Inc. (DXCM - Free Report) — Up 34.2%
ETFs in Focus
ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report) — Up 3.8%
Invesco DWA Healthcare Momentum ETF (PTH - Free Report) — Up 3.4%
Loncar Cancer Immunotherapy ETF (CNCR - Free Report) — Up 3.2%
SPDR S&P Biotech ETF (XBI - Free Report) — Up 3.1%
Invesco Dynamic Biotechnology & Genome ETF (PBE - Free Report) — Up 3.0%
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