GLOBAL EQUITY OUTLOOK

Health care convalescence

23 mar 2017 / por Kate Moore

Many health care stocks are in the bargain bin after a long stretch of underperformance. We outline how it is key to discriminate between the sector’s haves and have-nots

Equity highlights

  • Health care stocks look cheap compared with their own history and other sectors. This reflects drug pricing pressures, waning growth opportunities with few blockbuster drugs in pipelines and uncertainty over U.S. health care reform.
  • We see innovation, a lifting of U.S. health care policy uncertainty and industry consolidation as potential catalysts. U.S. tax reforms encouraging repatriation of overseas cash could trigger M&A as large-cap drug makers seek to “buy growth.”
  • Relatively high dispersion of returns in the health care sector reinforces the importance of picking winners and avoiding losers. We currently see the most opportunities in biotech, medical devices and the U.S. managed care industry.

Snapshot

Health care stocks have historically traded at a premium to the broader equity market, partly reflecting their growth characteristics and popularity as a source of income. Yet today some sub-industries such as biotech sell at a discount. Many trade near the bottom of their historical valuation range, as the Bargain bin chart shows.

Bargain bin
Health care valuations vs. global stocks, 1996-2017

Health care valuations vs. global stocks, 1996-2017

Sources: BlackRock Investment Institute, MSCI, Institutional Brokers' Estimate System and Thomson Reuters, March 2017.
Notes: The dots show the current premium or discount of selected health care sectors to the MSCI All-Country World Index, based on forward price-to-earnings estimates. The bars show the range between the 25th and 75th percentiles since 1996. A reading greater than one indicates a premium to the broader market; less than one reflects a discount. Services include distributors, service providers and facilities. Past performance does not guarantee future results. This information should not be relied upon as investment advice for any particular fund or security.

 

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Kate Moore
Chief Equity Strategist
Kate Moore, Managing Director, is Chief Equity Strategist for BlackRock and a member of the BlackRock Investment Institute.
Global Opportunities Team
BlackRock Global Equity Team