The healthcare sector trailed the broader market last year. The group was stymied by its status as a defensive group. Even its growthier segments, namely biotechnology, didn’t keep pace with other growth sectors.
The upside of that downside is that the healthcare sector’s status as a value destination is now amplified as bargains abound across industries. These include biotechnology, medical devices, and pharmaceuticals. For investors that want to access the good deals without devotion to individual equities, the Invesco S&P 500® Equal Weight Health Care ETF (RSPH) could be an interesting idea.
The $988.4 million RSPH holds 65 stocks, none of which exceed an allocation of 2.31%, confirming the exchange traded fund limits investors’ single-stock risk. That methodology also ensures market participants that embrace RSPH get exposure to a broad swath of attractively valued healthcare stocks.
Inside RSPH’s Value-Tilted Lineup
Owing in part to RSPH’s equal-weight methodology, value is apparent across the ETF’s roster. Take the case of Illumina (NASDAQ: ILMN). ILMN is that RSPH’s second-largest holding. It’s also one of the most attractively valued diagnostics and research stocks at the moment. Additionally, it is levered to some of the disruptive elements of the healthcare sector.
“The firm provides a broad range of instruments and related consumables to help researchers and clinicians identify and understand genetic variations,” noted Morningstar analyst Julie Utterback. “The scale of these projects can be wide, such as population genomic initiatives being pursued in many countries, or narrow, such as noninvasive prenatal screening. We believe Illumina will continue to benefit from the rapidly expanding applications of genomic sequencing tools through its own innovation and select acquisitions.”
Medical device and supply firm Baxter (NYSE: BAX) is another example of a cheap stock residing in the RSPH portfolio. The provider of in-home dialysis care is spinning off its kidney care division to focus on higher growth areas.
Investors expect that transaction to take place this year. Still, some market participants are concerned about its success, because it pertains an industry with slow growth prospects. Those worries are among the reasons why the stock is inexpensive. The concerns may open the door to opportunity with the RSPH component.
“We suspect Baxter’s financial prospects will improve, especially in 2025 and beyond, as hospitals renegotiate their reimbursement deals with third-party payers, and as Baxter renegotiates significant contracts, a key group purchasing organization among them,” added Utterback.
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