The health-care sector faced a challenging year in 2023, but signs of a comeback are emerging in 2024. Investors are eyeing biotech and medical technology (medtech) as areas with rebound potential. In this article, we explore the factors driving this resurgence and highlight some investment opportunities within the sector.
A Promising Start to 2024
Citi Global Wealth Investments recently noted that the health-care sector is experiencing a revival in mergers and acquisitions (M&A) deals in the new year. Transactions worth approximately $9.6 million have already been recorded in January. This upswing comes after a tough period for early-stage biotech companies struggling to secure funding for research and development amid rising interest rates.
Health Care’s Underperformance in 2023
In 2023, the health-care sector underperformed the broader market, with the iShares U.S. Healthcare ETF posting only a modest gain of around 2%. However, Citi believes that savvy investors may now find a treasure trove of rebound opportunities in the sector.
The Resilience of Health Care
Citi emphasizes the inherent resilience of the health-care sector over the long term. It highlights the sector’s track record of positive earnings growth during recent global earnings recessions. As macroeconomic conditions evolve, health care is seen as an unstoppable trend beneficiary, with growth prospects extending beyond anti-obesity drugmakers.
The Role of GLP-1 Drugs and Artificial Intelligence
GLP-1 (glucagon-like peptide-1) drugs, initially developed for diabetes treatment but increasingly used for weight loss, made waves in the health-care sector in 2023. However, Citi believes that the sector is now poised to regain its leadership position, driven by demographic shifts and the integration of artificial intelligence.
Anticipating Earnings Recovery
Citi expects health-care earnings to recover in 2024, positioning the sector for potential outperformance. It identifies discounted valuations in medical technology and tools as attractive, while biotech presents a high-risk, high-reward opportunity, particularly as interest rate cuts are anticipated.
Top Biotech Picks
Citi’s top biotech picks include Biomea Fusion, Alnylam Pharmaceuticals, and Immunovant.
A Favorable Outlook for Biogen
Jared Holz, health-care sector strategist at Mizuho Securities Americas, names biotech firm Biogen as one of his top trading ideas for 2024. He anticipates a better year for Biogen, driven by full-year sales of its Alzheimer’s treatment Leqembi. The introduction of an injectable version is expected to enhance long-term uptake.
Medtech’s Role in Drug Development
Citi recognizes some medical device makers as essential players in drug development. These companies collaborate with biopharmaceutical partners in areas such as drug formulation and packaging. Others produce devices for conditions like heart disease and diabetes.
Robotics-Assisted Surgery
Citi identifies an investment opportunity in makers of equipment used in robotics-assisted surgery. Trent Masters, global portfolio manager at Alphinity, highlights surgical robotics maker Intuitive Surgical as a top conviction call.
A Nuanced Perspective on Medtech
Medtech experienced challenges during the GLP-1 drug trend in 2023. However, the sector is now seeing more nuance, with longevity considerations supporting procedures alongside healthier populations.
ETF Investment in Health Care
For those preferring exchange-traded funds (ETFs), Matt Orton, chief market strategist at Raymond James Investment Management, favors the health-care sector and recommends the iShares U.S. Medical Devices ETF. He believes that best-in-class medical device companies have recovered well post GLP-1 selloff and sees further potential for names like DexCom, Intuitive Surgical, and Abbott Laboratories.
In conclusion, the health-care sector is showing signs of a resurgence in 2024, offering investment opportunities in biotech, medtech, and medical devices. With changing dynamics and advancements in AI, health care is poised for potential outperformance, making it an attractive choice for investors seeking growth prospects.
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This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor.
