As market uncertainty continues and inflation remains an issue, BofA Securities says healthcare is an industry that investors may want to be more involved in.
Given that the US may have fallen into a recession or is on the verge of a recession, BofA analysts provide five reasons to own healthcare: defense; strong earnings growth; outperform during recessions; solid foundation; and inexpensive.
The healthcare group wrote: “Health care has generated the strongest earnings growth in history…”. “The aging population is also a secular headwind for the sector.”
On current valuations, they added, “pharmaceuticals trade at near-record discounts against staples by defense and biotech peers that also trade at near-record discounts.” record against growing peer-to-peer technology.”
Some caution advised
However, BofA’s healthcare team advises that there are currently risks to investing in healthcare stocks as well. These are the industries that have long been agreed upon; secular context favors the cycle; Healthcare is dominating IPOs and government spending.
“Prior to the most anticipated recession in history, the overweight of funds that are active in defensive versus cyclical was more extreme than in 2009 or 2020, the two recessions,” the team writes. worldwide, including a near-record 15% overweight rate in the healthcare sector.”
The US government debt and return of crater policy pose risks to government spending on health care, they added.
The team notes that healthcare has historically been negatively correlated with inflation, adding that long-term inflationary pressures would be a headwind.
what to buy?
Despite these concerns, BofA’s healthcare team offers options for different healthcare industries. Among managed care companies, Humana (HUM) ranked first due to significant exposure to Medicare Advantage. The company has twice raised its MA growth outlook for 2023.
“The company is accelerating back to its growth trajectory after focusing on margins in 2022,” the team said. “In the long run, its services arm (CenterWell) will support what is already an income booster for teenagers.”
In the vast biopharmaceutical space, BofA is interested in Eli Lilly (NYSE:LLY) and Merck (NYSE:A). Previously, the group recognized the company’s “impressive new product cycle and best growth record in the industry compared to its peers”, while Merck (A) will continue to benefit from strong core business, particularly Keytruda (pembrolizumab) and Gardasil 9 (human papillomavirus 9 vaccine, recombinant) and its systems.
BofA’s big biotech pick is Vertex (NASDAQ:VRTX) due to its dominance in the cystic fibrosis market and the launch of exa-cel for sickle cell anemia later this year.
The company is also optimistic about BioMarin Pharmaceuticals (BMRN) based on Roctavian (valoctocogene roxaparvovec) approval and the long-term commercial opportunity it presents. This therapy is used to treat hemophilia A.
In the life sciences and diagnostics, BofA’s top choice is Thermo Fisher Scientific (TMO), known as the largest and most diversified life science instrument company.
“The size and positioning of the company as the sole end-to-end supplier for biopharmaceutical customers is driving profit sharing across its businesses and its ability to be unrivaled portfolio with a comprehensive portfolio of laboratory instruments, reagents and consumables, intensive biopharmaceutical services and a broad distribution channel,” the healthcare group wrote.
On McKesson (MCK), “the fundamentals for the company’s core Med-Surg and Pharmaceuticals businesses remain strong and will continue to remain defensive in any potentially degrading environment.”
“Besides the core business, opportunities in the specialty distribution sector will act as a headwind for ABC as the company expands its presence in high-growth regions. more, have higher profit margins,” the team wrote about AmerisourceBergen (ABC).
BofA sees brighter risk-return opportunities for CVS (CVS) in the long-term although a lack of short-term catalyst has affected its share price.
“Current valuation and free cash flow generation remain attractive. Additionally, Signify’s and Oak Street’s recent agreements will boost the business and continue to drive the next phase of growth for the strategy. corporate care delivery strategy.”