It didn’t seem that way to start 2019 as the sector lagged behind the S&P 500. In particular, the pharmaceutical business is experiencing a profit squeeze as a result of lesser-than-expected revenue from the sale of generic drugs. Big pharmacy chains like Walgreens Boots Alliance Inc and CVS Health Corp have lowered their earnings goals for 2019 as politicians clamor for an overhaul of the big pharma.
However, with volatility putting a strange hold on the capital markets, it could make a strong comeback.
“It was a dog. Nobody wanted to own health care, and the Democrats have been beating up on the health-care area because they want to introduce socialized medicine and single-payer,” said Alicia Levine, Chief Strategist at BNY Mellon. “These multiples have gotten crushed.”
ETF investors can look for opportunities in the Health Care Select Sector SPDR ETF (XLV ), Vanguard Health Care ETF (VHT ) and the iShares US Medical Devices ETF (IHI ). Safe havens like health care could certainly benefit investors, especially if the trade war turns out to be a protracted one–Levine certainly thinks so.
“I think it gets worse before it gets better,” Levine said. “The trade war is turning into a tech war, and this could go on longer. It could be deeper, and it could be harder to come up with a resolution.”
Big pharmaceutical companies were on the hot seat at Capitol Hill earlier this year with CVS Health, Cigna, Prime Therapeutics, Humana, and UnitedHealthcare’s OptumRx testifying before the Senate Finance Committee on the rising cost of prescription drugs. Among the topics discussed included rebates paid by drug makers contributing to the high costs and the drug industry’s pursuit of profits–all to shift the blame from the pharmaceutical companies to the drug makers.
U.S. President Donald Trump has already lambasted the pharmaceutical industry for the rising costs associated with prescription drugs. In 2017, health spending rose 3.9 percent and the trends is likely to persist.
“Investors are scared about the massive amount of uncertainty in terms of regulation,” said Brock Moseley, founder of Miracle Mile Advisors in Los Angeles. “There’s a critical eye around the health-care space and drug pricing. These challenging trends do give us some worry.”
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