Healthcare Sector Still Looks Good Despite Losses Over Past 30 Days

• Geopolitical Turmoil and FED Fears curb buyers with knee-jerk selling and sector rotation.
• Large cap Biopharma with dividends still offer good value.
• Small Cap Picks sell-off but expect a Q4 rally.

The summer rally is over it’s a holiday weekend with low trading volume and bad news is pervasive. A decent jobs report on Friday brought in buyers in early hours until Russia intervened with a Nord Stream suspension of natural gas to Germany. Just another risk-off day where raising cash is the new play. So don’t fight the FED eh?

Healthcare stocks are normally a defensive weighting in your portfolio but in this market who knows? Still the XLV  down 11 % YTD is  better than the DOW down over 13% and the S&P down over 17%. Biotech stocks were beginning to shown nice gains but speculative interest waned in mid-August as they sold off. The XBI sold off but is still up 3% over 30 days. We are still expecting a Q4 rally In speculative biotech and the XBI if it can hold the $80 level.

Our small/mid cap picks sold off over one month with the IWM down 3.7%  but CCXI, EVH and MRTX still look good. Modern (MRNA) will need help from their R&D update this Thursday.

Large Cap Biopharmaceuticals Offer Good Value.

We have favored  large cap biopharma over the years because of new product potential, dividends and relative safety. We recently published a review . Lately with market volatility rotation has been a factor with a shift to treasury bonds and energy with rising rates. Many bearish analysts have recently focused on valuations of large cap growth stocks saying with short term treasuries  yielding over 3% there is a good alternative to stocks. I might add that the IBB has underperformed down over 20% so not a good biotech trading option for the short term. The XLE Energy SPDR ETF by contrast is up 44% YTD!

So maybe we need to look at biopharma valuations under the pall of higher rates and government intervention on pricing. But Price to Sales ratios of about 5 and Forward PEs under 20 are not out of line with the S&P PE of 21.

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