Despite recent outperformance in the sector, we believe health-care stocks remain attractively valued. Health-care price-earnings multiples have recently moved closer to those of the broader market, but are still considerably lower than their historical peaks.
The sector is not without its challenges — including uncertainty over the impact of the Affordable Care Act on the profitability of health-care providers. However, we continue to see attractive investment opportunities and growth potential across many subsectors.
Challenges such as patent expirations have prompted companies to seek new ways to grow earnings. For biotechnology firms in particular, rigorous research and development is leading to more technologically advanced products that offer vast improvements in the way illnesses and diseases are treated. And as the Affordable Care Act provides millions more people with access to health insurance, an increase in demand for health-care products and services could boost growth for many businesses in the sector.
In this rapidly changing environment, we believe careful fundamental research and analysis, combined with bottom-up stock selection, remain essential.