As the old Wall Street adage goes, the healthcare industry tends to underperform the stock market in presidential election years, and that has held true in recent cycles. But there's reason to believe that a number of health stocks, led by Eli Lilly, could buck historical norms this year. The S&P 500 Healthcare sector index has outperformed the broader S&P 500 in just three of the past eight presidential election years dating back to 1992, according to FactSet data. That corresponds to a probability of only 38%. In contrast, when considering all years since 1992, healthcare has outperformed his S&P 500 index in more than half of the periods (18 out of 32 stocks). So far in 2024, healthcare has been the best-performing sector in the S&P 500 index. 500, up about 2%. The overall broad market index has fallen about 1% since the beginning of the year. .GSPHC .SPX Year-to-date Mountain Healthcare Sector vs. S&P 500 Year-to-date With the 2024 election date about 10 months away, it's too early to make grandiose predictions. Still, we see attractive fundamentals for many healthcare stocks over the coming year, and even if history tells us otherwise about this group in a presidential election year, we feel confident owning Lilly, GE Healthcare, and Danaher. is obtained. Last week, we added Abbott Laboratories, Amgen, Novartis, and Walgreens Boots Alliance to our stock watchlist, known as the bullpen. Jim Cramer interviewed the CEOs of all four companies at the JPMorgan Healthcare Conference in San Francisco last week. “Healthcare could be a real challenger for technology this year, and this business may actually grow faster than most technologies, given the coronavirus shackles many of these companies have been caught in. “It has the potential to be revived from the beginning,” Jim wrote. His weekly Monday column. In general, the reason investors tend to be more cautious about the health care sector during presidential election years is related to rhetoric and policy uncertainty. Of course, the details of each election may vary. But the cost of prescription drugs and health insurance tends to be the focus of debate among politicians in the U.S., leading some investors to put money into stocks in industries that have come under fire from critical rhetoric. may be cautious. Consider that Sen. Bernie Sanders (Vermont), a front-runner for the 2020 Democratic presidential nomination, has made his “Medicare for All” proposal a centerpiece of his campaign. Joe Biden ultimately overtook Sanders as the Democratic nominee (and ultimately became president), but Sanders' early strength in the polls had a ripple effect on Wall Street health insurance stocks. . .GSPHC .SPX Mountain 2022-12-30 Comparison of the Healthcare Sector and the S&P 500 Index for 2023 and Beyond Last year, the healthcare sector lagged significantly behind his S&P 500 Index. Overall index. Although the healthcare industry performed well in 2022 amid a terrible overall market situation, investors didn't give much weight to healthcare's defensive properties last year. The sector would have fared even worse in 2023 if not for the 59% rise in Eli Lilly, currently the S&P 500's most valuable healthcare company. Damian Conover, director of healthcare research at Morningstar, said recent disparities have created a situation where valuations look quite attractive for most sectors in the healthcare industry, including many pharmaceutical and medical device companies. That's what it means. “I think now is the perfect time to take advantage of this opportunity,” he said in an interview. It's hard to predict whether the U.S. economy will “continue to grow very well or maybe even stagnate, but I think health care is well-positioned from a valuation standpoint either way,” Conover said. “In many cases, especially at large biopharmaceutical companies and some device companies, the rewards are impressive. [dividend] Pharmaceutical companies have been the focus of politicians' attention in recent election cycles. However, Conover suggested that the rhetoric surrounding drug companies could take on a different tone in 2024 due to provisions in the Inflation Control Act (IRA). The August 2022 legislation, sponsored by Biden and other Democrats, would give the government agency that administers Medicare the power to negotiate drug prices with manufacturers and increase the number of drug prices for people enrolled in the government's senior health care program. Introduced an annual out-of-pocket cap on prescription drug costs. Conover warned that while politicians may continue to criticize drug companies, the IRA's plans could reduce the size of this cycle. “I think it's partially a stabilizer, even if the rhetoric has been higher than I expected.” LLY 1Y Mountain Eli Lilly Stocks Over the Past 12 Months. Eli Lilly remains a club favorite drug inventory based on our confidence in our superior drug pipeline that has driven industry-beating revenue growth for many years. Even after its success in 2023, Lilly stock will be worth owning in 2024, when the company's obesity drug Zepbound continues to roll out. The company's experimental Alzheimer's disease drug donanemab may soon receive approval from U.S. regulators, another catalyst. We maintain our rating on Eli Lilly stock at '2', which would increase our position, as Eli Lilly stock is already up about 8% heading into 2024 and hovering near record levels. It means waiting for a rebound beforehand. Conover told CNBC that he believes Eli Lilly's stock is “starting to be overvalued,” and that Morningstar is taking a slightly more cautious view on Lilly at this point. Eli Lilly's stock currently trades at about 50 times expected earnings, according to FactSet. This is higher than the healthcare sector's 18.5x P/E multiple and the S&P 500's 19.5x. Two drugmakers added to our bullpen last week, Amgen and Novartis, trade at approximately 15 times forward earnings. While there is no guarantee that bullpen stocks will be added to our portfolio, both companies represent interesting investment ideas, and we believe opportunities exist in healthcare in this election year. Amgen has completed its acquisition of Horizon Therapeutics, potentially emerging as the third-largest obesity drug company behind Eli Lilly and Novo Nordisk, the maker of Wegobee. Meanwhile, Novartis has a strong stock purchase program, boasts a dividend yield of over 3%, and has restructured its portfolio in recent years to focus on innovative medicines in areas such as cardiovascular health and immunology. Life sciences company Danaher and medical device provider GE Healthcare look attractive to own in 2024. At a high level, both companies have an advantage because they operate in industries that are less sensitive to election rhetoric and policy proposals. Other reasons to like stocks. DHR 1Y Mountain Danaher 1 Year Danaher appears poised to finally overcome the customer inventory overhang that plagued its financials last year. Danaher was one of the stocks stuck in what Jim calls “COVID constraints” as pandemic-era ordering habits normalized. Specifically, we expect Danaher's bioprocessing business to return to growth in the second half of this year. Additionally, increased biotech trading activity and potential interest rate cuts by the Federal Reserve could give Danaher customers more money to spend on the company's tools and products used in the drug development process. Morningstar's Conover said of the life sciences tools industry, “The valuations in this space look pretty good because the market was overly optimistic during the pandemic and is now overly pessimistic.” GEHC 1Y Mountain GE Healthcare 1Year GE Healthcare has fallen more than 10% in the past six months, but our outlook on the company remains unchanged. Now that the MRI and CT scan maker has been separated from General Electric Co., management remains committed to growing profits. Additionally, the continued rollout of Alzheimer's drugs (Biogen and Eisai's Requemby, and perhaps soon Lilly's donanemab) will ultimately lead to the ability to determine who should take the drug and monitor patients' brains. Demand for GE Healthcare's image processing equipment is likely to increase. undergoing therapy. The company's ability to leverage artificial intelligence to further enhance its products and make them more attractive to hospitals and other healthcare providers is a potential tailwind. HUM 1Y Mountain Humana 1 Year Right now, the health care stock we're most concerned about is Medicare Advantage giant Humana, which Jim says has become “a very difficult stock to own.” I wrote this early Wednesday. This is partly due to results from rival UnitedHealth Group, which released fourth-quarter results last week that showed more seniors using health care services. Investors view UNH's developments as worrying for Humana, with the company's stock dropping 3.6% on Friday alone. However, Humana recouped some of its losses on Friday, including a 2% rise Wednesday and a flat Tuesday. Humana's utilization, as reflected in an industry metric known as the medical loss ratio, remains in flux ahead of the company's fourth-quarter earnings report on Feb. 5. Before UNH's results, Morningstar's Conover told CNBC he was most cautious. 2024 Health Insurance Stocks said the group faces “a little more headwinds” than other groups. For example, Medicare Advantage enrollment growth, a key focus area for Humana and other insurers, is likely to slow in 2024, he said. The club still holds a small position in Bausch Health, a Canadian pharmaceutical company that faces multiple legal uncertainties. Our rating for Bausch of 4 means we need more information before taking further action. (Jim Cramer's charitable trusts are Long LLY, DHR, and GEHC. See here for a complete list of stocks.) As a subscriber to Jim Cramer's CNBC Investment Club, before Jim makes a trade Receive trading alerts. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust's portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
This photo shows a unit dedicated to the production of insulin pens at the American pharmaceutical company Eli Lilly's factory in Fegersheim, eastern France.
Frédéric Florin | AFP | Getty Images
As the old Wall Street adage goes, the healthcare industry tends to underperform the stock market in presidential election years, and that has held true in recent cycles. However, this year, many health-related stocks Eli Lillywhich may be contrary to historical convention.
