Bullish over healthcare companies
Healthcare stocks were all but forgotten for years as investors focused their attention on industries that offered more action, up or down. The neglect hurt returns for a while, but in a market like this, being ignored can lead to an outperformance.
Shares of drug makers and the suppliers of medical products and equipment were sold less aggressively than many other stocks during the worst of the recent declines. Their reputation for safety despite turbulent conditions has created fresh demand among stock investors looking for a bit of stability.
Healthcare companies "are relatively less affected by fluctuations in the business cycle, have fairly high margins, high returns on invested capital, pristine balance sheets, and relatively little exposure to the credit markets," said Evan McCulloch, manager of the Franklin Biotechnology Discovery fund.
"You can expect companies to meet earnings projections, and there's little risk of a financial blowup."
Being bombproof in such dangerous times has allowed the stocks to gain momentum even in the wake of Barack Obama's victory on Tuesday. The president-elect has made an overhaul of healthcare delivery a high priority, and drug makers' profit margins are expected to come under pressure.
Mark Oelschlager, who manages another sector fund, Live Oak Health sciences, said that prospect had already been factored into share prices.
"If you react now by selling companies that might be hurt by Obama or a Democratic Congress, you're reacting too late," he said. What valuations may not take into account, he added, is the long-term "tailwind" of an aging population that will require more medical care in years to come. 