Almost all year, a good number of analysts have been touting healthcare as a safe bet during the market downturn. They were wrong for a good chunk of 2008, but Merrill Lynch points out today that the sector has quietly crept back into positive territory.
Over the past three months, the S&P 500 healthcare sector has returned 1 percent—a paltry gain but a huge improvement on declines in every other sector in the S&P.
Double-digit earnings growth helps, and while Merrill cops to getting optimistic on the sector a bit early, strategist Brian Belski says the story is intact.
He's calling healthcare a "safety net," and puts it alongside IT and consumer staples companies as sectors that could be set to climb, especially as earnings power in hotter areas like materials and energy begins to cool. Belski compares this round of weakness to the last downturn in healthcare:
While we acknowledge the sector has been "cheap" for quite a long time, we would also note that levels have not been this low since 1994, a period that preceded a major wave of consolidation and renewed growth within the sector.
Belski reminds us that 1994 was the start of something big as a wave of consolidation. In the 12 months following the trough in those stocks, healthcare returned 46.6 percent, more than double the S&P 500. This time around, he says merger activity could come in medical devices, biotech, and life sciences industries.
As for individual names, Merrill likes the manufacturing and innovation side of healthcare including Celgene, Johnson & Johnson, Medtronic, and ThermoFisher.
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