BOSTON – Investors who sought refuge in health care have reason to feel less queasy than most in a sick economy where no industry has been recession-proof.
Health care stocks posted the second-smallest loss over the past year among 10 sectors tracked by Standard & Poor’s, with an average decline of 21.6 percent through the end of January. Consumer staples such as food and household products like laundry detergent did a little better, with a 19.7 percent decline. Both sectors easily beat the S&P 500 index, which tumbled 40 percent.
Now comes the tricky part: figuring out how much safe-harbor staying power health care has left 14 months into this recession.
When enough investors see a glimmer of economic rebound on the horizon, more volatile and beaten-down sectors like financial services and energy are likely to post the biggest gains. Meanwhile, defensive plays like health care will fall out of favor.
But this recession is already the longest in a quarter-century. Most economists expect it to stretch well into this year. When things do turn around, it’s more likely to resemble a long slog than the more abrupt comeback seen after the dot-com bubble.
“People presume we won’t come out of this one with guns blazing, whereas in 2003 we came strongly out of the gate, and health care was left in the dust,” said Christopher Davis, a Morningstar Inc. analyst who follows health care funds.
Health care stocks tend to hold up in recessions because people need to take care of basic medical needs in good times and bad.
This time around, the market appears to think health care will remain a modestly good bet for a while. Last month, health care stocks lost an average 1.3 percent while the S&P 500 was off nearly 8.6 percent in the index’s worst-ever January result.
And TrimTabs Investment Research is recommending health care and energy as two sectors likely to see gains. The Sausalito, Calif.-based firm says health care companies generally have more access to readily available cash than those in other industries.
That contention is backed up by Pfizer Inc.’s Jan. 26 deal to acquire rival drug maker Wyeth for $68 billion in a cash-and-stock transaction that reassured investors dealmaking is still possible. About two-thirds of the purchase price is being paid in cash from Pfizer and debt extended by banks, making it the largest cash deal in any sector since last July, TrimTabs said.
But fund managers who generally like health-care stocks now urge caution for any investor considering shifting assets into a health care stock or specialty fund, or buying into a diversified fund with a hefty weighting in health care.
While health care companies could benefit from the Obama administration’s plans to expand insurance coverage and bring more patients into the system, policy details have yet to emerge. And many question whether such plans are achievable amid a recession.