Wolfe Research suggests that investors should consider re-entering health-care stocks, a sector that has faced notable challenges in recent months. Between September and October, health-care stocks experienced a decline of over 4%, drawing the attention of market analysts. Rob Ginsberg, a technical analyst at Wolfe, highlighted that the Health Care Select Sector SPDR Fund (XLV) has rebounded past its 50-day moving average during this recent rally. Ginsberg argues that since the sector is not yet overbought, it may be poised for a reacceleration towards previously established highs. This recovery could potentially benefit a broad array of stocks within the sector.
One compelling reason for investors to be optimistic about health-care stocks is the attractive dividend payouts associated with many of them. CNBC Pro has identified S&P 500 health-care stocks yielding at least 1.5%, surpassing the overall S&P 500 yield. These stocks not only provide a steady income stream through dividends but also have favorable analyst ratings, with over 51% of Wall Street analysts recommending them as “buys.” This dual appeal makes health-care stocks an intriguing prospect for both income-focused investors and those looking for capital appreciation.
One noteworthy company within this sector is Abbott Laboratories, which currently offers investors a yield of 1.9%. The company has been well-received by analysts, with approximately 55% rating it a “buy” and an estimated average price target suggesting an 11% upside. Abbott recently reported impressive earnings and revenue for its third quarter, exceeding analyst expectations. Perhaps more importantly, it raised its earnings-per-share guidance for the full year, demonstrating the company’s confidence in its operational prospects. CEO Robert Ford’s assertion that they are “well-positioned” for future growth reflects Abbott’s robust momentum, despite previous legal challenges that resulted in significant financial penalties.
Another player in the health-care sector is Becton, Dickinson and Company, providing a dividend yield of 1.6%. With 60% of analysts favoring a buy rating, Becton Dickinson appears to carry considerable upside potential—nearly 16% based on the average price target. Interestingly, the stock has remained relatively stagnant year-to-date, which could reflect market hesitance or volatility. Investors might find a compelling investment opportunity in this stalwart if it can overcome pressures from broader market dynamics and sustain its supportive dividend yield.
Cigna is another significant entity within the health-care sphere, also offering a 1.6% dividend yield. Recent headlines surrounding the company, particularly allegations related to its Express Scripts division inflating insulin costs, have introduced a layer of complexity for investors. Despite these challenges, analysts maintain strong faith in Cigna, with 71% advocating a buy rating and nearly 13% upside to expected price targets. The company demonstrated resilience by surpassing earnings and revenue estimates in its previous quarter, which bodes positively as we await its upcoming earnings report.
Finally, Merck & Co. stands out with a higher dividend yield of 2.8% and a promising upside potential of nearly 26%. The stock commands support from 64% of analysts, who have offered a buy rating. Recently, Merck announced promising developments in its experimental treatment for respiratory syncytial virus in infants. Moreover, the company has consistently outperformed in its revenue and earnings reports, particularly within its oncology treatments and vaccine portfolios. Nonetheless, it has faced challenges with lower-than-expected sales of its HPV vaccine, Gardasil. Investors await its third-quarter results, scheduled for release soon, which may provide further clarity on the firm’s trajectory.
The health-care sector appears to be on a revival path, aided by favorable technical indicators, robust dividend payouts, and promising earnings reports from key players. Companies like Abbott, Becton Dickinson, Cigna, and Merck showcase diverse opportunities, each with unique strengths and challenges. Given the sector’s recent underperformance, the current climate presents a cautious but potentially rewarding proposition for investors. As financial landscapes continue to shift, remaining vigilant and informed will be essential for capitalizing on health-care stocks in the coming months.