Update-2 7/23/25…10:45 a BIOTECH rally continues with ARKG and XBI up on a GREEN SCREEN DAY:
- Finally — one of our new Trading LIST picks XENCOR (XNCR) shows Momentum at $9.80, undervalued with P/CASh. at 1.5,RSI is now soaring.,one new partnership will take the stock to $12.
- Thermo Fisher Scientific (TMO) a new pick yesterday is up 12% on earnings: on earning beat s to $484.
- SMID movers we hold: COGT, CRMD,EYPT, RNA, SDGR, WVE etc.
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Update-1… 10:20 am EDT…A broad nascent rally in healthcare stocks this am: Merck(MRK) offers good value at $80+. Also look at BDX,BMY, LLY, PFE, TMO etc.
12:30P Reiterating a buy for selected health science stocks such as Thermo Fisher (TMO) and BDX prior to earnings, A rare bottom for all stocks in this sector.
Healthcare Stocks are Underperforming the Market: How the Subsectors are Doing.
- Healthcare stocks used to be defensive because of reliable growth and good value but now that is ending- one of the worse sectors for investing.
- There are several negative trends that do not bode well for healthcare investing: price controls, tariffs and higher insurance premiums.
- Our favorite sectors of healthcare going forward are: SMID biotechs, large cap biopharma and U.S.Medical Device (MedTech) because all should benefit from Innovation.
The Healthcare sector is the worst sector of the market over the past 12 months. As you certainly should know Technology is the leading sector making up about 30% of the S&P 500 and up 9.3% YTD and 12.2% over one year. of . Healthcare stocks (XLV) are down 1.15% YTD and down 5.95%over one year. And by the way the Communication Services (XLC) sector is up 12.75% YTD and 28.11% one year. This sector would include stocks like META, media and wireless communication stocks and many other “technology” stocks. The major holdings of many healthcare ETFs and FUNDS are large cap pharmaceutical companies like LLY, MRK and MEDtech companies like BSX, ISRG and TMO. But in the past a major holding was UnitedHealth (UNH) which now is a much smaller share of major healthcare funds because UNH is down 44% YTD and 49 % for one year. And to begin with that’s the major performance issue with the healthcare sector as the U.S.Healthcare Providers (IHF) is down 21% over one yer and up only 5.5% over FIVE years. In contrast the S&P 500 is up 13.5% over one year and 95% over 5 years!
FOCUS. on SMID Cap Biotechs for INNOVATION
One of the reasons we have shifted our focus to SMID Cap Biotechs is over the past twelve months is because many of these life science companies have the technology, funding and products to propel growth. Indeed there is greater risk but if you identify a stock with good potential your odds of a big 100% + win are greater. For example we have identified small cap biotech companies who already utilize AI tools for drug discovery, example Recursion Pharmaceuticals (RXRX.) And of course SMID caps are the likely sector for M&A and licensing deals.
Last week we covered major biopharma companies and showed that your healthcare portfolio overweighted or held only 3 of these large caps there is a good chance you equaled the market performance. But even with health science funds that are overweight large cap drug stocks it would hard to beta the S&P 500 for example the PPH is flat YTD and down 5.71% one year. The highly diversified PRHSX Fund is down 3.815 YTD and 21 % one year. And both funds are down over FIVE years. Going back to pre-pandemic levels notably from 2010 -2020 the healthcare sector boomed primarily because of new enrollees in the ACA, higher utilization rate of medical services and new pharmaceutical blockbusters. At the peak of the epidemic a bubble developed (PRHSX) peaked in late August 2021 )caused by declining for vaccines, diagnostic services for COVID and drugs. You can also see the bubble bursting in many other health science portfolio like FSMEX which also peaked in August 2021.
Moving on to more ETFs and FUNDs in pure play MEDtech and Devices we should look at the IHI which is up 2.74% YTD, 8.61% one year and 25.91% over 5 years,with growth peaking in late 2021.
Now who wants to gamble that any of the sectors will get better over the next 3 years? Well we have yet more negative trends which could counter-act the population growth of older demogaphics, which has been a bullish factor.
MORE RISKS AHEAD?
- Insurance rates are going up
- Pricing policies from current and Biden administration are squeezing drug companies.
- Subsidies for health care premiums are declining , putting a Squeeze on the consumer.
- Tariffs may squeeze the consumer and the product companies.
The only potential improvement in growth prospects on the horizon comes from innovation. New products and technology to offer Precision Therapeutics and better data analytics that could be improved by AI. Improving drug discovery with AI has already shown promise, The healthcare market is a big oppororunity for disruptive technology.