In 2020, the coronavirus pandemic created tons of challenges for the public as well as private organizations. However, the sector’s stocks repeated 2019’s underperformance. However, this year should be different according to industry analysts, as it ushers in an administration supportive of the Affordable Care Act as well as a return to pre-Covid levels of health-care utilization.
As a reminder, through mid-December, the S&P 500 Health Care Sector Index was up 8% compared with 13% for the S&P 500. However, the pandemic affected differently. Interestingly, coronavirus testing lifted the diagnostics subsector 31%, while clinical labs rose 18%. Moreover, biotech stocks were up 13%. However, traditional pharmaceutical stocks and hospital gained a mere 3%, and retail pharmacies dropped 18%.
Importantly, as a group, health-care stocks trade at discounted valuations and make up less than 14% of the S&P 500’s market weighting. However, that seems unlikely to last, as health-care spending represents 18% of the economy and is growing.
How to choose biopharma stocks
Interestingly, AstraZeneca is the top pharma pick. Notably, complementing the strong sales of Astra’s cancer drug Tagrisso are the rising sales of its cancer treatments Imfinzi as well as Calquence. This is not the end of the story as other building blockbusters include the diabetes treatment Farxiga.
Moreover, biotech Vertex Pharmaceuticals is undervalued. Interestingly, many investors see the company’s pipeline as bare, an analyst from Citigroup expects good news in mid-2021 from clinical trials of its investigational treatments for inherited disorders of the liver and kidneys.
Furthermore, another employee of Citigroup favors Sarepta Therapeutics among midcap biotechs. It is worth noting that, the company is racing other firms to deliver gene therapies to treat muscular dystrophy. The company has nearly $2 billion in cash. It means the company has the resources to win. It makes sense to invest in biopharma stocks.