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Healthcare: At The Intersection of Value and Growth

Doug Famigletti, Portfolio Manager

November 22, 2019

Lately it appears that the debate among Value and Growth investors over whose strategy will prove more effective in the long-term may never be concluded. Value Stocks have made a sustained comeback in recent months with the S&P 500 Value Index (IVE) reaching a 52-week high last week. The S&P 500 Growth Index (IVW) also hit a 52-week high last week making it difficult for investors to determine which way the market’s momentum will shift. As the debate continues, it appears that the Healthcare sector may be poised to capitalize on the combination of Value and Growth despite its meager performance over the past year.

Among the Health Care sector’s many positives are an aging global population and the demand for more extensive drug treatments and medical care. Additionally, the sector’s corporate balance sheets remain flush with cash increasing the possibility of growing dividend payments, buybacks and M&A activity. As a result, the entire sector appears to be seeing a shift upwards. According to Christian Fromhertz, CEO of the Tribeca Trade Group, the performance of the Health Care Select Sector SPDR Fund relative to the high-growth iShares U.S. Medical Devices ETF (IHI) is a leading indicator. “The recent upturn in the ratio means the broader health-care group is catching up to one of its best-performing subsectors, a positive move that likely improves health-care’s near-term prospects.”

For investors looking to capitalize on this opportunity, we recommend the diversification of Healthcare stocks in your portfolio. Some value-oriented Healthcare companies we currently like include Johnson and Johnson (JNJ) and Bristol-Myers Squibb (BMY) while some growth-oriented companies we recommend include Medtronic (MDT) and Zoetis (ZTS).


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