Healthcare stocks are for sale. Pfizer and Stryker have strong growth prospects.


We suggest healthcare stocks to investors who are wondering whether to buy stocks or wait for a rebound. Neither purely defensive nor purely growth-oriented, it offers the best of both worlds and perhaps a way out of the conundrum.

That defensive ability was fully demonstrated in 2022.


Healthcare Select Sector SPDR

Exchange-traded funds (ticker: XLV) fell just 2.1%.


S&P500

18% loss. And for good reason. No matter what’s going on in the economy, people need to take their meds and see their doctors. Revenues and profits tend to be significantly less volatile than the broader market.

That strength hasn’t continued this year, with technology and telecom service stocks leading the way as healthcare stocks fell 2.3%. The S&P 500 index rose 8.4%, including reinvested dividends, as investors treat healthcare like a defensive sector.

But there is also real growth there. In fact, the healthcare industry has averaged 12% annual revenue growth since his mid-1980s, the fastest of all sectors and even surpassing the technology industry. This growth has been driven by aging populations in the United States and other developed countries, wealthy consumers in emerging markets, and new treatments for previously untreatable diseases.

Year-to-date declines have made valuations more attractive. Healthcare currently trades at a he-5% discount to the S&P 500, with a historical premium of around 11%, but the underlying outlook remains largely unchanged.

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Kevin Walsh, $10.1 billion portfolio manager


Jensen Quality Growth

The fund (JENSX) likes that several companies in this sector not only have defensive downside protection, but that innovation and pricing power are driving attractive long-term growth.

He points to Stryker (SYK), a leader in hip and knee replacement devices. The $108 billion company also sells beds and other equipment for hospitals, which Warksch said has been a driver of short-term growth, and is also a pioneer in robotic surgery for joint replacement. be. He sees a boost from more complex procedures in emerging markets and from aging populations wearing down joints in developed countries.

Pfizer (PFE), Barons Our pick earlier this year is another Walkush favorite. The pharmaceutical company found itself in a bind during the Covid-19 pandemic, working with partner BioNTech (BNTX) to develop and commercialize a vaccine in record time. The same approach can be applied to the development of future drugs and vaccines, accelerating innovation, Wolksch said.

The coronavirus vaccine has been a huge cash cow for Pfizer. Earnings for 2021 and his 2022 double what he has in the last two years, and free cash flow nearly tripled. Rather than paying out special dividends or buying back shares, management embarked on acquisitions to rebuild its drug development pipeline. Since early 2021, Pfizer has signed eight deals with companies involved in treating neurological disorders and sickle cell disease, a DNA testing company, and a $41 billion acquisition of Ciegen.

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(SGEN) is committed to treating cancer.

Walksh says the Ciegen acquisition is expensive, but he’s confident Pfizer’s management will get it, although he says it’s a “show story.” He praised the company for taking advantage of the one-time coronavirus vaccine windfall and investing in long-term growth.

Pfizer stock valuations aren’t tough. The stock is trading at 11 times 12-month forward earnings, close to its average over the past five years and compared to 18 times the S&P 500.

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It may take some patience, but don’t expect the cheapness to last forever.

write destination Nicholas Jasinski, nicholas.jasinski@barrons.com



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