When many investors think of healthcare innovation, they focus on companies in industries such as biotechnology, medical devices, telehealth and more.
Exchange traded funds, including the Goldman Sachs Future Health Care Equity ETF (GDOC), address some of those concepts, but GDOC has some interesting surprises. Those include exposure to blue chip pharmaceuticals stocks.
GDOC’s allocations to old school pharmaceuticals companies can offset some of the volatility associated with faster-growing corners of the healthcare space. Additionally, companies such as Eli Lilly (NYSE:LLY) and AstraZeneca (NASDAQ:AZN) bolster GDOC’s credentials as a play on quality.
“When it comes to treatments, we’re above consensus for 2022 and roughly in line with consensus in the longer term. We think a certain number of high-risk individuals will continue to contract COVID-19 each year for the foreseeable future, requiring treatment. And given the uncertainty around COVID-19’s spread, we also expect there will be interest in maintaining stockpiles of treatments,” notes Morningstar.
Both Eli Lilly and AstraZeneca, which combine for almost 9% of GDOC’s roster, are involved with the coronavirus treatment competition. GDOC’s pharmaceuticals holdings could have other tailwinds this year, including compelling valuations.
“A long process around potential U.S. drug policy changes is likely weighing on the valuations of global stocks since the U.S. market represents a disproportionate share of profits for many global healthcare companies,” says Mornignstar analyst Damien Conover.
Another benefit offered by GDOC is its focus on large-cap companies. The weak spot in the healthcare sector dating back to last year has been speculative smaller companies, most of which aren’t profitable. The weighted average market capitalization of GDOC’s 59 components is $52.86 billion.
Several GDOC member firms are cash-rich companies, including some in the biotech space, providing a buffer against broader market volatility.
“Still, there are reasons to believe that things could get better. For starters, biotech stocks almost never have two bad years in a row,” reports Ben Levisohn for Barron’s. “The selloff has left more than 70 companies with more cash than their combined equity and debt, observes Baird analyst Brian Skorney, the most he has ever seen.”
Several of GDOC’s biotechnology and pharmaceuticals components could be players on the consolidation stage if healthcare mergers and acquisitions activity perks up this year.
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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.