Why downtrodden healthcare stocks will rally soon: Michael Arone - Business Insider

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Healthcare stocks are badly lagging the market this year. Here's why a top strategist at $2.9 trillion State Street says they're set to rally.

One reason for Arone's view is that the basic business metrics for healthcare companies are improving, which makes the stocks unique as"It's one of the only areas where analysts have been increasing their earnings expectations," he said. "Revenue growth and earnings per share growth of the healthcare sector is greater than that of the overall market."Investors are paying record amounts for stable high-growth companies.

He adds that investors' neglect of healthcare companies has helped create the opportunity he's identifying, as the combination of improving metrics and relatively minimal stock movement makes healthcare valuations look better compared to the rest of the market. "Sentiment is poor, valuation is attractive, growth is attractive, so investors aren't appreciating the opportunity," he said. "It's still a pretty inexpensive asset at a time there's not a lot of inexpensive assets."

He continues that even with the possibility of structural reforms, healthcare companies will benefit as the populations of developed countries grow older and demand for healthcare grows and as countries and organizations spend more money on research to treat diseases that disproportionately affect the elderly, such as cancer and Alzheimer's.

 

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