Equity Analyst Andrew Hatem, CFA, discusses the potential of healthcare stocks in uncertain economic times and the rationale behind active management strategies in this sector.
Catalysts in Play: The consensus view is that the Federal Reserve is nearly done raising interest rates, and many investors want exposure to stocks that thrive at the end of a tightening cycle. However, it remains unclear if the economy is stable, slowing, or headed for recession.
Entry Points: Healthcare is a defensive growth sector that has performed relatively well in different environments, even when the stock market has grown only modestly or declined. Over the past three decades, the S&P 500 has returned 10% or less during 11 calendar years. In 10 of those 11 years, healthcare outperformed the broad market.
- Historical Resilience: The sector has demonstrated resilience, in part because healthcare spending has grown faster than GDP growth, even in periods of slow economic growth or recession.
- Fundamentally Sound: Healthcare companies typically score well on the fundamentals, with many enjoying good margins and strong cash flow. What’s more, many businesses in the sector have used that cash flow wisely to create shareholder value.
- Valuation Advantage: While some stocks in the sector are too expensive and others may be value traps, there are plenty of inexpensively valued opportunities here, reinforcing what a promising environment this is for healthcare to outperform.
Active Strategy: Regardless of what the economy does in the near term, we think this sector is fertile ground for finding good stocks through active management. We see many attractive opportunities in healthcare, based on our “Three-Circle” stock selection process that factors in valuations, business fundamentals, and business momentum.
5827970.2
For a full transcript, click here.
For questions or additional information, please contact us.
Definitions:
The S&P 500® Index is an unmanaged index of the common stocks of 500 widely held U.S. companies.
GDP: Gross Domestic Product
Equity Securities Risk: Equity securities are volatile and can decline signifi cantly in response to broad market and economic conditions.
Growth Stocks Risk: Growth stocks may be more sensitive to market conditions than other equities as their prices strongly refl ect future expectations.
Disclosures:
Boston Partners Global Investors, Inc. (“Boston Partners”) is an Investment Adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. Boston Partners is an indirect, wholly owned subsidiary of ORIX Corporation of Japan (“ORIX”). Boston Partners updated its firm description as of November 2018 to reflect changes in its divisional structure. Boston Partners is comprised of two divisions, Boston Partners and Weiss, Peck & Greer Partners (“WPG”).
The views expressed reflect those of Boston Partners as of July 27, 2023. Any such views are subject to change at any time based on market and other conditions and Boston Partners disclaims any responsibility to update such views. Discussions of market returns and trends are not intended to be a forecast of future events or returns.
Estimates reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.
