Healthcare may also be immune to rate hike
3. Consider health care stocks. For those investors looking to emphasize less economically sensitive parts of the market, I continue to prefer health care, which historically has been less sensitive to rising rates than other traditionally defensive sectors.
Market Realist: Healthcare stocks could continue to outperform.
The healthcare sector looks fundamentally sound and has lately received a major boost from a growing biotech sector (IBB). Ongoing consolidation is putting more market share in the hands of a few strong players. Today, biotech is one of the hottest investment areas. It’s driven by the demand for effective treatments and new cures. Biotech stocks have had great earnings growth in the last few years and have been investors’ darlings.
The graph shows the earnings growth for some of the biotech giants. The earnings of Gilead Sciences (GILD), a biotech stock, grew at a whopping CAGR (compound annual growth rate) of 38.3% in the last five years. Biogen’s (BIIB) earnings grew at a CAGR of 30.5% during the same time frame. Meanwhile, Merck (MRK) reported earnings growth at a CAGR of 26.1% in the last five years. Celgen’s (CELG) earnings grew at a CAGR of 25.1%. Amgen (AMGN), another biotech giant, has had a slower earnings growth rate—6.8% since 2010.
These are some staggering numbers. And the sector has the potential to deliver similar returns in the near future. With the average age of the American population set to rise, demand for medical services is likely to hold steady or even increase. Even though healthcare stocks (IYH) are usually considered defensive in nature, they traditionally hold up well in the run-up to a rate hike.
Read Where Can You Ride Out the Rate Regime Change? for more investment ideas.