Investors looking for compelling valuations don’t have to go deep into the lagging value factor. They can harness some growth with pharmaceuticals ETFs, including the VanEck Vectors Pharmaceutical ETF (NASDAQ: PPH).
PPH tracks the MVIS US Listed Pharmaceutical 25 Index. That index “is intended to track the overall performance of companies involved in pharmaceuticals, including pharmaceutical research and development as well production, marketing and sales of pharmaceuticals,” according to VanEck.
For investors looking for bargains, some PPH components are definitely on sale right now.
“The group trades at its biggest discount to the S&P 500 index in 15 years amid investor concerns about pharmaceutical pricing if the Democrats sweep the November elections, according to an analyst,” reports Andrew Bary for Barron’s.
PPH Pertinent Now
Healthcare spending made up 18% of U.S. GDP, and it is rising. Looking ahead, by 2020, it is projected that global healthcare spending could shoot up to $8.7 trillion as the industry faces increased challenges from an aging population, rising costs, shortage of skilled workers, dealing with legacy IT, invasive procedures, and medical errors.
“Drug stocks now fetch about 13.5 times projected 2021 earnings, against a price to earnings ratio of 20.2 times for the S&P 500 index, leaving the pharmaceutical group at a 30%-plus discount to the overall market, writes J.P. Morgan analyst Chris Schott in a client note. Drug stocks were at parity to the S&P 500 P/E ratio as recently as 2018,” according to Barron’s.
Some analysts are speculating about what desired outcomes could be for the healthcare sector and investors on Election Day. Consensus wisdom holds that PPH and friends could rally if President Trump is defeated, but the healthcare sector could be vulnerable to laggard status under a dividend government.
“The drug industry gets about 20% of its revenue from U.S. government programs like Medicare and Medicaid, 30% from commercial insurers, and 50% from outside the U.S. He noted that the government has ‘little power’ over commercial drug pricing,” reports Barron’s. “Any potential change in drug reimbursement in federal-financed programs would take a Democratic sweep of the presidency, House, and Senate, Schott writes.”
Many investors are looking to healthcare ETFs for exposure to companies that could soon bring a coronavirus vaccine to market, but that thesis requires ample due diligence.
As individuals have been sheltered-in-place over the past several months due to the ongoing coronavirus pandemic, they have been compelled or even obligated to postpone elective medical procedures so that priority can be placed on helping patients Covid-19. This could be setting up a unique opportunity in healthcare according to one financial expert.
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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.