Healthcare Stocks Show Strong Start in 2024

by Warren Seah

Healthcare stocks have experienced a notably strong start to the year, following a disappointing performance in 2023. Investors are optimistic about the sector’s potential resurgence, with the S&P 500 Health Care sector index already up 3% as of January 12, compared to the relatively flat performance of the broader S&P 500.

This positive trend not only marks a significant reversal from last year, when the healthcare sector only saw a marginal gain of 0.3% compared to the broader market’s 24% increase, but it also represents one of the sector’s best starts to the year in three decades, as noted by Goldman Sachs’ Asad Haider in a recent report. In fact, healthcare funds have attracted stronger inflows than any other S&P 500 sector.

Furthermore, the recent healthcare investor conference in San Francisco, hosted by J.P. Morgan, provided a boost to market sentiment. The event showcased some encouraging M&A activity and an overall more positive atmosphere compared to the previous year’s gloomy conference.

However, investors have shown specific preferences in their healthcare stock purchases. While U.S. pharmaceutical stocks and large-cap biotech companies have outperformed the S&P 500 this year, managed-care stocks and contract research firms have lagged behind, according to Haider’s analysis.

This early surge in healthcare stocks offers hope for a much-needed comeback, setting a promising tone for the sector in 2024.

Healthcare Investors’ Focus in 2024

As we enter 2024, healthcare investors are eager to identify the sectors that show promise after a year of missed opportunities. Our analysis of the Health Care Select Sector SPDR Fund reveals stocks that had underperformed the S&P 500 in 2023 but have shown a commendable recovery, with at least a 6% increase in 2024 as of the market closing on Jan. 12.

Promising Stocks

Among the ten stocks that cleared our screening, two closely trailed the S&P 500 in 2023. These include the renowned biotech company, Regeneron Pharmaceuticals, and the drug distributor Cencora, formerly known as AmerisourceBergen. Meanwhile, Moderna, despite experiencing a significant decline of approximately 45% throughout the year, also managed to make it to the list.

Biotechs Dominating the Market

A considerable number of companies that made it through our screen are biotechs, positioning them favorably to benefit from the escalating valuations in this sector. Key players such as Moderna, Regeneron, Amgen, and Gilead Sciences are currently experiencing an uptrend due to heightened investor confidence, primarily driven by an anticipated reduction in interest rates and a surge of mergers and acquisitions. Notably, the SPDR S&P Biotech ETF has impressively gained around 37% since the beginning of November.

Other Recognized Companies

Apart from the biotech giants, a few other notable names have successfully passed our screening methodology. Merck, for instance, recently achieved an all-time high on Jan. 10, underscoring their steady growth. Moreover, medical device company Medtronic, and managed care company Centene have also shown promising results.

Healthcare’s Rebirth

The outcome of our analysis suggests a significant resurgence in the healthcare sector, particularly with an optimistic sentiment surrounding biotech. However, it remains uncertain how long this positive shift will carry on throughout the year.

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