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?
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 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. (— Up 51.4% past week CLVS Quick Quote CLVS - Free Report) Forty Seven Inc. FTSV — Up 41.7% Proteostasis Therapeutics Inc. PTI — Up 40.8% Aquestive Therapeutics Inc. AQST — Up 35.7% DexCom Inc. DXCM — Up 34.2% ETFs in Focus ARK Genomic Revolution Multi-Sector ETF ARKG — Up 3.8% Invesco DWA Healthcare Momentum ETF PTH — Up 3.4% Loncar Cancer Immunotherapy ETF CNCR — Up 3.2% SPDR S&P Biotech ETF XBI — Up 3.1% Invesco Dynamic Biotechnology & Genome ETF PBE — Up 3.0% Want key ETF info delivered straight to your inbox?
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