Market Health

3 Undervalued Healthcare Sector Stocks to Watch

Healthcare has become one of the most politicized sectors of the market. But that may be a blessing in disguise for those seeking a bargain buy.

Among other sectors in the market, healthcare is a growth leader.

It’s actually set to be the fastest-growing sector in 2019 based on revenue growth projections, according to research by FactSet.

S&P 500 Sectors Ranked by Estimated 2019 Revenue Growth

Yet despite the optimistic forecast, healthcare has also had the most sluggish stock performance. Every other sector has managed to see double-digit gains in the first half of the year, as tracked by their respective Select Sector SPDR exchange-traded funds.

Healthcare is the only sector that has gained less than 10% year to date.

S&P 500 Sectors Ranked by Year-to-Date Performance

Why are investors so wary? It may be that healthcare has become one of the most polarizing and politicized issues in the current election cycle.

Just as policy debates surrounding climate change affect the energy market… and the growing buzz of antitrust regulations in “Big Tech” has unnerved tech investors… rising medical costs and insurance premiums play out in stock charts.

As we all know, healthcare is a major talking point for politicians. The current horde of Democratic presidential hopefuls have made this abundantly clear.

Most of the leading candidates (for now) support eliminating private health insurance in favor of a “Medicare for All” program – a proposal that’s as big a pipe dream as the “Green New Deal.”

America’s health insurance market – which is valued at nearly $1 trillion – is far from perfect. But most Americans would rather keep it than scrap the entire thing.

The only real debate is whether the government should provide a public option in addition to the existing private market, which nearly half of Americans favor.

So long as bright-eyed candidates continue to pretend that abolishing a market that Americans support is on the table, general anxiety will loom over healthcare stocks.

But this may not be as terrible as it seems.

As I’ve written before, I like seeking out sectors that are enjoying a bit of cognitive dissonance… where market sentiment and financial prospects don’t seem to match up.

Those sectors are where value investors should dig deep and search for hidden treasure.

Given the sector’s growth prospects over the latter half of 2019, the scourge by politicians might make it a gold mine for value-minded investors.

3 Cheap Healthcare Stocks to Watch

One key player to consider is Centene Corp. (NYSE: CNC) – an insurance provider involved in both private and government-sponsored healthcare programs.

It’s currently trading for roughly one-third of its sales per share, making it one of the cheapest stocks showing solid growth in its sector.

WellCare Health Plans (NYSE: WCG) is another company involved with government-sponsored healthcare plans, including Medicaid, Medicare Advantage and others. It’s trading for about $0.62 on the dollar.

R1 RCM (Nasdaq: RCM), trading for just over 1.3 times sales, provides a platform for healthcare systems and other health services groups to collect and manage patient services revenue.

All three stocks are projected to grow at a faster clip than their peers this year. And at valuations like these, they’re certainly hard to pass up.

At these prices, these companies could become gems in your portfolio once the specter of election politics subsides.

Good investing,

Anthony