https://blogs.wsj.com/moneybeat/2015/10/26/from-worst-to-first-deutsche-bank-says-health-care-stocks-will-be-back-on-top-in-2016/
Now might be the time to snap up health-care stocks, according to equity analysts at Deutsche BankDBK.XE-0.04%.
Recent declines have been spurred in part by politicians scrutinizing drug pricing, which is a major driver of profits at certain biotechnology and health-care companies.
Valeant Pharmaceuticals International Inc.VRX.T+0.08% has drawn much of the headlines and scrutiny. The company received subpoenas from federal prosecutors for information related to drug pricing, and this morning held a conference call to put to rest questions about its business model and accounting practices.
But it has hardly been alone. Other companies have received subpeanas and endured their share price cratering.
The S&P 500’s health-care sector is the worst performer over the last three months with a decline of 7%. The S&P 500 has slipped 0.5% during the same period. That’s a reversal from recent years when gains in health-care stocks outpaced the broader market.
Health-care’s underperformance is “unwarranted,” the Deutsche Bank analysts say, adding that they expect the sector to surge into the end of the year or be the best performer in 2016, driven by earnings. The analysts project sales growth of 6% and per-share earnings growth of 6% to 9% next year for the sector, which is better than the S&P 500, they add.
Given the recent pullback, the sector is now cheaper than the index, which is rare. The S&P 500’s health-care sector trades at 14.7 times expectations for next year’s earnings, while the S&P trades at 16 times forward earnings.
“We believe growth in healthcare products will stay strong owing to an aging population and increasing efforts to treat conditions with drugs and maximize the productivity of scarce healthcare labor with as many tools and conveniences as conceivable,” the analysts write.