Healthcare Sector 2023 outlook+Top 10 ETFs For Consideration
Summary：
- Healthcare sector 2022 Performances Review
- Healthcare sector 2023 Outlook
- Most Undervalued Choices and Best ETFs for Consideration
1.Healthcare sector 2022 Performances Review
2022 has been riddled with volatility, inflation, interest rates, and panicky investors. Investors' focus has shifted from cyclical and growth sectors towards defensive and value sectors amid substantially high CPI prints, an aggressive Fed, and a turbulent market.
As of December 22 the $S&P 500(.SPX)$ has shed 18.63% of its value year to date, the $NASDAQ(.IXIC)$ has dipped 31.55%, and the $DJIA(.DJI)$ is down 8.15% for the year. Investors are finding refuge in consumer defensive sectors, and particularly healthcare.
Healthcare Sector's YTD in 2022 is -9.77% and some star stocks performances as below:
Data from https://finviz.com/
Cited from CNBC, as of Dec 20th, The NYSE Arca Pharmaceutical Index has gained 3.8%. Although the $NASDAQ Biotechnology(NBI)$ is down 10.9% year to date, it has climbed 7.6% over the past 3 months as of Tuesday’s close. That gain topped the three-month performance of the$iShares Russell 2000 ETF(IWM)$ .
2. Healthcare Sector 2023 Outlook
1) With regard to the outlook of Healthcare in 2023, Large-cap pharmaceutical stocks have benefited from widespread concerns about an economic downturn. Even in a recession, consumers will still need to seek out health services. That sentiment will continue to propel the sector at least until the first half of 2023.
2)The Inflation Reduction Act provided some clarity around drug pricing that should help health-care stocks. With a divided Congress, there is less risk of new legislation upending current rules. This Act would facilitate the development of the most innovative and effective drugs, many of which are developed by small biotechnology companies. In addition, as large biopharmaceutical companies will need to introduce more effective drugs more frequently, this industry may usher in more mergers and acquisitions, which is a long-term positive factor for the biotechnology industry.
Some large-cap Pharma stocks in 2022, Data from CNBC
3)M&A has long been a major catalyst in the sector. Rising interest rates and an uncertain economic outlook has muted deals activity, broadly speaking. However, large pharma companies have had little choice but to look to supplement their growth with acquisitions. Many are facing patents that are expiring and they need to replace those sales to keep growing. The result was a modest pickup in deal value this year.
- The biggest was $Amgen(AMGN)$ ’s $27.8 billion offer for Horizon Therapeutics, the maker of Tepezza, a thyroid eye disease treatment. It continued Amgen’s buying spree and sharpens its focus on rare diseases. In August, Amgen agreed to buy $ChemoCentryx(CCXI)$ , which makes treatments for rare autoimmune diseases.
- $Pfizer(PFE)$ , fresh off the success of its Covid vaccine and treatment, has struck two deals in 2022. There was the $11.6 billion buyout of $Biohaven Pharmaceutical Holding Co Ltd.(BHVN)$ and the $5.4 billion purchase of $Global Blood Therapeutics(GBT)$ . Biohaven allowed Pfizer to add migraine drug Nurtec ODT to its portfolio, while Global Blood added an oral treatment for sickle cell disease.
There also are other catalysts for pharma stocks, such as easing pressures from foreign exchange. It is expected that the sector could improve next year as new drug launches, product approvals and a return of merger and acquisition activity drive up the value of the stocks.
Strategas head of technical analysis, Chris Verrone, appeared in an interview on CNBC On December 10, he discussed why he thinks healthcare will be a leading sector in 2023 and Healthcare is one of his "Top Ideas" as we head into the next year.
He noted that though "pharmaceuticals has been a dead industry for the better part of the last 5 or 6 years, the pharmaceutical stocks have started to break out. we have seen leadership really coming from the likes of $Merck(MRK)$ and $Bristol-Myers Squibb(BMY)$ and that he sees healthcare as a leading sector into 2023 and it is a "theme worth playing".
Tony DeSpirito, chief investment officer of BlackRock US equities and chief investment manager of dividend strategy portfolio, pointed out in its 2023 Global Outlook said that investors should continue to invest, but should adopt a "flexible" approach.
Despirito believes that among the three stable industries of public utilities, medical care and consumer necessities, taking into account the demographic factors of the aging population, the medical care industry will perform best in the long term. He is over allocated to the health care unit."The data shows that the profitability of the healthcare industry is more resilient."
3. Most Undervalued Choices and Best ETFs for Consideration
Below are 10 Most Undervatlued Wide-Moat Health Stocks from Morning Stars:
Notes: The most undervalued healthcare stocks are GSK and Zimmer Biomet Holdings, both trading at a 30% discount to their Morningstar fair value estimate. The least undervalued on the list is AstraZeneca, trading at an 8% discount. Morningstar analysts believe all 10 of these stocks are high quality and continue to be undervalued in the market.While the sell offs in equities have shaken up investor confidence, Investing in healthcare ETFs over healthcare stocks is a great way to gain exposure to the healthcare sector without having to pick and choose individual stocks.
Top 10 Healthcare ETFs in 2022
| Rank | ETF | YTD | Holdings Amount | Top 10 Holdings Concentration | One the Fund’s Top 10 Holdings |
| 1 | $First Trust Nasdaq Pharmaceuticals ETF(FTXH)$ | 1.04% | 30 Stocks | 57.65%. | $Amgen(AMGN)$ |
| 2 | $Virtus LifeSci Biotech Products ETF(BBP)$ | -0.03% | 54 stocks | 29.34% | $Biogen(BIIB)$ |
| 3 | $Invesco Dynamic Pharmaceuticals ETF(PJP)$ | -2.80% | 28 stocks | 59.03% | $AbbVie(ABBV)$ |
| 4 | $Health Care Select Sector SPDR Fund(XLV)$ | -3.32% | 66 stocks | 55.03% | $Johnson & Johnson(JNJ)$ |
| 5 | $SIMPLIFY HEALTH CARE ETF(PINK)$ | -4.40% | 60 stocks | 49.89% | $UnitedHealth(UNH)$ |
| 6 | $iShares U.S. Healthcare ETF(IYH)$ | -5.26% | 116 stocks | 53.87% | $Bristol-Myers Squibb(BMY)$ |
| 7 | $iShares Global Healthcare ETF(IXJ)$ | -5.68% | 133 stocks | 41.55% | $Merck(MRK)$ |
| 8 | $Fidelity MSCI Health Care Index ETF(FHLC)$ | -6.42% | 438 stocks | 47.97% | $Eli Lilly and(LLY)$ |
| 9 | $iShares U.S. Healthcare Providers ETF(IHF)$ | -7.45% | 74stocks | 76.52% | $Cigna(CI)$ |
| 10 | $VanEck Pharmaceutical ETF(PPH)$ | -10.33% | 26 stocks | 64.28% | $Pfizer(PFE)$ |
Chart by Wallstreet_Tiger, data as of December 22
Healthcare ETFs can offer a diversified portfolio of healthcare companies, allowing investors to spread their risk across a range of different healthcare stocks. Healthcare ETFs are also generally more liquid than individual stocks, meaning that investors can enter or exit the market quickly and easily.
Overall, investing in healthcare ETFs over healthcare stocks is a great way for risk-averse investors to gain exposure to some of the best-in-class names in the healthcare sector, which include $Johnson & Johnson(JNJ)$, $Pfizer(PFE)$, and Moderna, Inc.
Question For You：
Which healthcare company do you like best? What's special about this company?
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