The healthcare sector, the fifth-largest sector exposure in the S&P 500, was once a reliable destination for investors who wanted dependable performance without taking on significant risk.
The group has lived up to its reputation for being less volatile than the broader market. But it’s also been a source of considerable disappointment. For the three years ending August 6, the Health Care Select Sector Index returned a meager 4.3%, while the S&P 500 gained nearly 61%. Underscoring healthcare’s weakness over that span, the Health Care Select Sector Index also significantly trailed the equivalent consumer staples and utilities gauges.
With those factors in mind, traders are right to question the efficacy of wagering on the Direxion Daily Healthcare Bull 3X ETF (CURE). But the stars could be aligning for a healthcare resurgence. CURE attempts to deliver 300% of the daily returns of the aforementioned Health Care Select Sector Index. That implies it could be an ideal avenue for risk-tolerant traders seeking short-term gains on what could be a rebounding sector.
Value Hunters Could Lift Healthcare Sector
One reason CURE could catch tailwinds over the near term is because some market participants are looking for value ideas to augment portfolios that may be heavily tilted toward richly valued artificial intelligence (AI) and growth stocks. In addition to attractive valuations, healthcare stocks feature other compelling fundamentals that could be alluring for patient investors. Should they buy in, that activity could be enough to propel CURE over the near term.
“They (healthcare stocks) are considered defensive, meaning they can hold up better than some other sectors during an economic slowdown,” noted Morningstar analyst Tori Brovet. “Demand for health-related products and services continues to rise as populations age.”
Relevant to traders considering CURE is the fact several of Morningstar’s top 12 healthcare names hail from the index the Direxion ETF tracks. That group includes pharma giant Merck (MRK), a company with significant leverage to cancer drugs.
“It holds a first-mover advantage in one of the largest cancer indications of non-small cell lung cancer with excellent clinical data,” observed Morningstar’s Karen Andersen. “Also, we expect new cancer drug combinations will further propel Merck’s overall drug sales.”
Lab equipment and scientific instruments manufacturer Thermo Fisher Scientific (TMO) is another member of CURE’s index that could be a contributor to healthcare-sector upside into year-end.
“The firm earns a wide economic moat rating, and the shares of its stock look 26% undervalued relative to our $630 fair value estimate,” added Brovet.
Traders looking for a bold pharma-specific play can consider the Direxion Daily Pharmaceutical & Medical Bull 3X Shares (PILL).
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