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Stocks  | April 24, 2019

The health-care sector has been left behind by the 2019 stock-market rally.

Stocks in that sector are down, in part, because of concerns about proposals by Bernie Sanders and other presidential candidates for radical changes to the U.S. health-care system. But no matter what might be proposed, we are a long way off from actual legislation that could pass both houses of Congress to redesign 18% of the U.S. economy. Meanwhile, the aging U.S. population and continual innovation underline an excellent long-term thesis for the health-care sector.

So it is no surprise that analysts see significant profit opportunities for investors who buy the right health-care stocks at current prices.

From First to Last

To put things into perspective, here’s how the 11 sectors of the S&P 500 have performed this year and over longer periods:

Total returns
 201920183 years5 years10 years15 years
Information Technology26.3%0%98%149%506%414%
Communications Services21.2%-13%15%32%159%181%
Consumer Discretionary21.0%1%56%98%526%360%
Real Estate14.1%-2%25%58%409%300%
Consumer Staples13.2%-8%20%50%252%269%
Health Care-0.1%6%26%61%337%261%
S&P 500 Index16.7%-4%48%72%325%248%
Source: FactSet

It is interesting that health care was last year’s best-performing sector. But there is no question it has lagged behind over the past three years.

The next obvious question is whether we’re in the midst of an overreaction in the market. Hundreds of MarketWatch readers left comments after reading this article on the subject last week.

Breakdown of S&P 500 Health-Care Sector

There are 62 stocks in the S&P 500 health-care sector. What follows are lists of the best and worst performers this year, and lists of the companies showing the highest levels of sales growth, and, finally, the companies most favored by analysts.

Bucking the Trend: Best Health-Care Performers

Ten S&P 500 health-care stocks are up at least 20% this year through April 22, including reinvested dividends:

CompanyTickerTotal return - 2019Total return - 2018Change in quarterly salesChange in quarterly sales per share
Celgene Corp.CELG,46%-39%16%25%
Align Technology Inc.ALGN39%-6%27%28%
Dentsply Sirona Inc.XRAY33%-43%-3%-1%
Alexion Pharmaceuticals Inc.ALXN32%-19%19%20%
Mettler-Toledo International Inc.MTD30%-9%5%8%
Waters Corp.WAT28%-2%4%10%
Perrigo Co. PLCPRGO27%-55%-7%-4%
Danaher Corp.DHR23%12%4%3%
PerkinElmer Inc.PKI21%8%18%16%
Cerner Corp.CERN20%-22%4%6%
Source: FactSet

Several of the winners have been rebounding from large declines in 2018.

The sales figures are based on the most recently reported quarterly results through April 22, compared with the year-earlier quarter. For all the sales numbers in this article there is another column showing sales per share. If a company’s sales have increased dramatically because of an acquisition, then it is important to look at sales per share if the deal was funded through the issuance of new shares. Since the original shareholders’ ownership has been diluted, the increased sales may not seem “worth it” if sales per share haven't also risen considerably.

Sales per share will increase more rapidly than raw sales if a company has been buying back enough shares to reduce the share count considerably. Buybacks also boost earnings per share.

Worst Health-Care Performers of 2019

Here are the worst performers in the S&P 500 health-care sector this year through April 22:

CompanyTickerTotal return - 2019Total return - 2018Change in quarterly salesChange in quarterly sales per share
Biogen Inc.BIIB-24%-6%5%11%
Cigna Corp.CI-22%-6%34%29%
Abiomed Inc.ABMD-20%73%30%29%
CVS Health Corp.CVS-19%-7%12%2%
Centene Corp.CNC-17%14%29%9%
Humana Inc.HUM-15%16%7%11%
AbbVie Inc.ABBV-13%-1%7%16%
ResMed Inc.RMD-12%36%8%8%
Bristol-Myers Squibb Co.BMY-11%-13%10%9%
Regeneron Pharmaceuticals Inc.REGN-11%-1%22%23%
Source: FactSet

With CVS one of this year’s worst performers, you might be wondering why its rival Walgreens Boots Alliance isn’t on the list. This is because Walgreens is actually in the S&P 500 consumer-staples category. CVS is considered more of a health-care-focused company because it owns Caremark, a pharmacy-benefits manager. It acquired Aetna in November.

Best Health-Care Sales Growers

Here are the 10 S&P 500 health-care companies with the greatest increases in sales for their most recently reported quarters:

For most of these companies, we are showing a comparison of gross income margins. A company’s gross margin is sales, less the cost of goods sold, divided by sales. It is an indication of pricing power. It is good to see the margin expanding as sales increase. Of course, margins cannot always be expanding, but a narrowing margin could mean a company is having difficulty defending its market share or giving up profits in an attempt to expand its presence.

Analysts’ Favorites

Here are the 10 S&P 500 health-care stocks with the highest percentage of “buy,” or equivalent, ratings among sell-side analysts polled by FactSet:

Taking a slightly different approach to “favorites,” here are the 10 S&P 500 health-care stocks with majority “buy,” or equivalent, ratings and the most 12-month upside potential implied by analysts’ price targets:

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