Healthcare stocks have demonstrated a July rebound but continue to lag the broader market so far this year. The S&P 500 Health Care Select Sector ETF (XLV), featuring giants like Eli Lilly LLY and Johnson & Johnson JNJ, has risen 7.7% this year, compared to the S&P 500 Index's 16% gain (as of Jul 18, 2024).
Earnings and Outlook
The healthcare sector has seen earnings decline for six successive quarters, affecting overall S&P 500 earnings growth. Analysts, however, are optimistic about a strong rebound in the upcoming second-quarter earnings, expecting continued improvement through 2025.
After gaining in 2020 due to pandemic-related demand, healthcare stocks faced challenges in 2023 with a "COVID-19 hangover." Despite a recent uptrend in 2024, the sector trails behind Technology ETF XLK and Communication Services ETF XLC. Technology stocks have been gaining due to the artificial intelligence (AI) boom.
Compelling Valuation
Dan Eye of Ford Pitt Capital Group highlights healthcare's attractive valuation relative to the broader market, as quoted on Yahoo Finance. He highlighted favorable demographic trends, such as an aging population and increasing healthcare spending, as tailwinds for the sector's growth.
Medical Sector currency has an upbeat Zacks Sector Rank #4. The PEG (ratio) of the Medical sector is 1.95 versus 2.22 of the S&P 500.
Innovation and Specific Growth Areas
Recent years have seen significant FDA drug approvals and advancements in medical breakthroughs, particularly in AI and GLP-1 drugs. Eli Lilly's success with its Alzheimer's drug and GLP-1 development demonstrates notable growth within the pharmaceutical segment. The Medical sector’s projected EPS growth rate is 15.13% versus the 6.76% growth rate of the S&P 500.
Any Wall of Worry?
Analyst Dan Eye, however, warned that healthcare stocks can become political targets, especially amid debates over Pharmacy Benefit Managers (PBM) practices. Still, demographic shifts and ongoing medical innovations are tailwinds. However, the overall medical sector lacks on dividend payments.
ETFs in Focus
Against this backdrop, below we highlight a few healthcare and biotech ETFs that have offered sturdy gains in the past week.
Range Cancer Therapeutics ETF CNCR – Up 11.84% Past week
AdvisorShares Psychedelics ETF PSIL – Up10.7%
AdvisorShares Psychedelics ETF GNOM – Up 9.2%
Amplify Treatments Testing and Advancements ETF GERM – Up 9%
Virtus LifeSci Biotech Clinical Trials ETF BBC – Up 8.9%
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Get it free >>Johnson & Johnson (JNJ) : Free Stock Analysis Report
Eli Lilly and Company (LLY) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Range Cancer Therapeutics ETF (CNCR): ETF Research Reports
Virtus LifeSci Biotech Clinical Trials ETF (BBC): ETF Research Reports
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
Global X Genomics & Biotechnology ETF (GNOM): ETF Research Reports
Amplify Treatments, Testing and Advancements ETF (GERM): ETF Research Reports
AdvisorShares Psychedelics ETF (PSIL): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
