Broadly speaking, the healthcare sector, perhaps owing to its defensive properties, is seen as fairly valued. However, there are plenty of individual stocks within this group that are considered attractively valued following the sector’s 2022 struggles.
Adding to the allure of healthcare investing today is that many of the stocks that are trading at compelling multiples are also quality names. Many of those names are accessible via the IQ Healthy Hearts ETF (HART).
HART tracks the IQ Candriam Healthy Hearts Index and is unique among healthcare exchange traded funds in that, well, it’s not a dedicated healthcare ETF. However, that sector is HART’s core competency, and that could be a positive going forward for investors looking for good deals on healthcare stocks. Additionally, significant healthcare exposure makes HART appealing relative to the broader universe of struggling environmental, social, and governance (ESG) funds.
“Healthcare stocks, which benefited from investors seeking out safe havens from the market turmoil, were key to the buoyancy of many ESG strategies. Gilead Sciences (GILD) and Bristol-Myers Squibb (BMY) earned strong returns for the quarter and both score in the top 6% of the over 400 biotechnology companies with Sustainalytics’ ESG Risk Ratings,” wrote Morningstar analyst Lauren Solberg.
Bristol-Myers Squibb is one HART’s 79 holdings. As noted above, HART isn’t a dedicated healthcare ETF, but it allocates 64.6% of its weight to that sector, giving it a more defensive/value feel than what investors have come to expect with sustainable/socially virtuous products.
“The ability of sustainable investing strategies to remain competitive in a quarter when value outperformed growth runs counter to the common perception of a heavy tilt toward growth stocks among ESG strategies,” added Solberg.
Even it’s not a traditional ESG fund or a traditional healthcare ETF, there’s no denying that HART has merit as a quality play. Good news: Some of the fund’s quality names, of which there are plenty, aren’t stretched on valuation. Those include United Health (NYSE:UNH) and Merck (NYSE:MRK). That pair of Dow Jones Industrial Average members combine for 10.4% of HART’s roster. There is value to go around among healthcare stocks.
“Healthcare stocks held up reasonably well during the second quarter of 2022; the defensive nature of healthcare stocks played a part in the outperformance, surmises Morningstar sector director Damien Conover. The average healthcare stock is about 7% undervalued, with about one third of the stocks in the sector trading in 4- and 5-star range,” according to Morningstar.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.