Healthcare Stocks Aren't Cheap But Offer Attractive Returns

The healthcare sector is one of the better portfolio opportunities out there, but it is not a bargain from current levels and faces risks such as regulatory threats

Philip Straehl 22 November, 2018 | 12:32PM
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The healthcare industry makes for fascinating analysis. To our way of thinking, this has particular relevance today, as we want our portfolios to be filled with attractive assets that offer different performance drivers.

In this regard, healthcare offers unique characteristics, including a structural tailwind from an ageing population that has resulted in impressive profitability metrics over the past few decades. Furthermore, the healthcare sector offers strong fundamentals compared to many of the highly levered sectors and may offer downside protection.   

Healthcare Advantage

The healthcare industry has a well-regarded reputation for its durable profitability, part due to the demographic tailwind and part due to its reliable cashflow generation. The extent of this “quality” factor can be seen below, where the industry has enjoyed elevated returns-on-equity over the broad market.

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About Author

Philip Straehl  is Head of Capital Markets and Asset Allocation, North America, Morningstar Investment Management