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Valuation Dashboard: Healthcare - Update


  • Valuation metrics in the Healthcare sector.
  • Evolution since last month.
  • A list of stocks looking cheap in their industries.

This article series provides a monthly dashboard of industries in each sector of the GICS classification. It compares valuation and quality factors relative to their historical averages.

Executive Summary

Biotechnology is undervalued regarding historical averages in Price/Earnings and Price/Free Cash Flow, but profitability measured in median ROE is below its historical baseline. Healthcare Providers and Healthcare Technology are moderately overpriced. The former group is just at its historical average in profitability, the latter is below it. Healthcare Equipment has all metrics far below the baseline. Life Science Tools/Services are also far in overpriced territory, but their profitability factor is at its historical average. Data are mixed for Pharmaceuticals: P/FCF is good, P/E is moderately overpriced, P/S and ROE are very bad.

Anyway, I think systemic risk is more important than market valuation to manage a portfolio.

Since last month:

  • P/E has improved in Healthcare Technology, Life Science Tools/Services; no significant change elsewhere.

  • P/S has improved in all industries, the most in Biotechnology.

  • P/FCF has improved in all industries, the most in Life Science Tools/Services.

  • ROE has deteriorated in Healthcare Equipment and Providers; no significant change elsewhere.

  • In 1 trailing month, the Nasdaq Biotechnology ETF (NASDAQ:IBB) has lagged the SPDR S&P 500 ETF (SPY) by about 3.5%. The SPDR Select Sector Healthcare ETF (NYSEARCA:XLV) and the S&P 500 Pharmaceuticals ETF (XPH) have lagged the broad market benchmark by less than 1%.

  • The five best performers among S&P 500 Healthcare stocks on this period are Allergan PLC (AGN), Boston Scientific Corp. (BSX), Centene Corp. (CNC), Humana Inc. (HUM).

Some Cheap Stocks In Their Industries

The stocks listed below are in the S&P 1500 index, cheaper than their respective industry factor for Price/Earnings, Price/Sales, and Price/Free Cash Flow. The 10 companies with the highest Return on Equity are kept in the final selection.

This article was written by

Fred Piard profile picture
Data-driven portfolios and risk indicators.
Author of Quantitative Risk & Value and three books, I have been investing in systematic strategies since 2010. I have a PhD in computer science, an MSc in software engineering, an MSc in civil engineering and 30 years of professional experience in various sectors. My aim is making simple and efficient quantitative investing techniques available to my followers. Quantitative models can make investment decisions faster, reproducible and emotionless by focusing on relevant information in the middle of market noise. Moreover, models can be refined to meet specific risk tolerance and objectives. 

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I am an individual investor and an IT professional, not a finance professional. My writings are data analysis and opinions, not investment advice. They may contain inaccurate information, despite all the effort I put in them. Readers are responsible for all consequences of using information included in my work, and are encouraged to do their own research from various sources.

Analyst’s Disclosure: I am/we are long CELG, ESRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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