O ne-hundred-forty characters can do a whole lotta damage. A Hillary Clinton tweet Sept. 21, deploring "outrageous" "price gouging" in the specialty drug market, saw the largest biotech ETF tank 5% on Sept. 21 on fears of pricing controls.
At the end of the third quarter,iShares Nasdaq Biotechnology ( IBB ) had given up all its gains year to date on the back of roughly 11% losses in both September and August (it's since rallied a tad).
But the unsettling decline in the health care sector belies its outlook, say S&P Capital IQ analysts.
"Higher enrollments, cost management and prescription drug sales will continue to drive the best (earnings) growth" for health care among 10 sectors in the S&P 500 index, analyst Lindsey Bell wrote Sept. 17.
Indeed, IBB produced an annual average 30% gain in the past five years as of Oct. 2. In that period, out of 154 sector ETFs tracked by IBD, the top 10 each targeted the health sector.
In fact, now more than ever, with biotech and pharma ETFs trading as much as 25% below their 52-week highs, S&P Capital IQ sees a buying opportunity in solid biotech names such asGilead ( GILD ) andCelgene ( CELG ), an IBD 50 stock .
Nearly 11.7 million people are newly insured through ObamaCare health exchanges, the firm noted in a recent report. That should drive sales for health care providers and services. A strong dollar is likely to weigh on large-cap pharmaceuticals, but the Big Four --Pfizer ( PFE ),Merck ( MRK ),Bristol-Myers Squibb (BMY) andEli Lilly (LLY) -- should "once again post top-line growth in 2016 for the first time in five years as they pass the patent cliff," the report said.
Plus, the health care index is nicely valued vs. its 15-year average.
"Upside is especially attainable" within the biotech, pharma and equipment subindustries, the report added.
The big upside potential has seen sometimes-risky biotech and drug stocks make their way into many investors' ETF strategies . But now, with China and a global slowdown on their minds, investors are more focused on downside risk.
They may be right to be cautious.
"While value stocks are at risk should economic growth estimates continue to come down, momentum companies are exposed to more spikes in volatility," which has weighed on biotechs lately, Russ Koesterich, global chief investment strategist at BlackRock, wrote recently.
He suggested investors consider quality stocks -- "which generally have strong return on equity and low debt" -- for successful investing if the markets stay choppy.
Analysts at BofA Merrill Lynch Global Research agree.
In a new report, they say health care rates as the most attractive sector based on measures that have historically been best at predicting results, such as EPS and sales revisions, guidance and the prior quarter's results.
Stick with health care to stick with quality, BofA Merrill Lynch advised.