In September 2018, we suggested in this commentary that the time was right to explore further opportunities in US health care stocks, particularly in the pharmaceuticals and providers and services segments. Since then, however, political uncertainty has spawned an indiscriminate sell-off in many health care names, beginning in March 2019 and hitting lows around April 17 – even as equity markets continued to grind higher. The key point of uncertainty is whether a change in party power following the 2020 US elections could lead to sweeping health-care reform.
In this month’s commentary, we’ll revisit US health care stocks through the framework of our investment process. Rather than pondering the probability of a given election outcome and considering whether large-scale health care reform is likely to take shape in 18 months’ time – and then attempting to estimate earnings impact based on those probabilities – we rely instead on our well-defined investment processes and discipline to respond to this political uncertainty.