Makers of medical device implants and diagnostic products proved health care was no monolith after broadly outperforming the U.S. market and their health care brethren in 2018. But 2019 is shaping up quite differently through the first day of trading amid a spotlight from a variety of investment banks.
A number of last year’s hottest health stocks in the S&P 500 saw shares balloon as investors flooded the expanding sub-sector and pushed stocks like Abiomed Inc., Boston Scientific Corp., and Illumina Inc. to levels not seen in years. However, as investors locked in their 2018 outperformance, the high-flying group slumped in the start of the new year as money managers searched for cheaper stocks.
Despite the rocky start to 2019, sell-side analysts from shops including JPMorgan and Evercore ISI published overnight notes praising the group and recommending the sector amid broader macro concerns. Evercore’s team led by Vijay Kumar highlighted that the industry’s “stable outlook offers a safe haven for investors.”
However, Citigroup and Morgan Stanley weren’t as rosy across the board with Citi’s Amit Hazan projecting modest slowdowns in organic sales and earnings growth for the group. Hazan downgraded the firm’s ratings on top-performers in Medtronic Plc and Abbott Laboratories, but took a bullish stance on Zimmer Biomet Holdings Inc. and Baxter International Inc.
The group’s Wednesday slide is pressuring the broader health care sector which is only outperforming real estate names in the S&P 500, with names like Hologic Inc., Abbott, and Medtronic among the market’s worst performers. The pain for last year’s top performers didn’t end there as investors turned the calendar. Health insurance providers were pummeled with every stock in the S&P Supercomposite Managed Health Care Index underperforming.
The underperformance comes on the back of the sector’s rock-solid 2018. As the broader U.S. market churned through the second half of the year to turn negative, the S&P 500 Health Care Equipment Index ended the year up 15 percent, outperforming a health care sector that housed the Dow Jones Industrial Average’s top two performers.