Institutional Money Flows Report

  • 3 Reasons to Own Health Care Stocks in 2024 – January 11, 2024

    New years often bring a reset in the stock market.

    That’s great news for sidelined investors seeking new underfollowed opportunities.

    One lagging group is signaling a major trend shift underway.

    Today, I’ll share 3 reasons to own health care stocks in 2024.

    Ask a crowd which stocks are thriving right now, odds are they’ll tell you about the promise of A.I. or new SEC approvals benefiting the crypto sphere.

    While those developments are exciting and all, let’s be honest…they’re well-covered by the mainstream media…meaning a lot of value is already built in.

    Sometimes paying attention to lesser-followed consensus themes is worthwhile.

    That’s what makes today’s writeup exciting. Another group of equities is beaming under the surface of the market…backed by strong institutional support.

    That’s right, a resurgence is taking place in the medical arena.

    Today I’ll list a few data-driven reasons you’ll want to consider owning health care stocks this year, including one historical study.

    Let’s hop to it!

    Follow the Money, 3 Reasons to Own Health Care Stocks in 2024

    Not all stocks participated in last year’s double-digit rally in markets. The down-trodden medical space barely cracked even in 2023 with the sector gaining a measly 2%.

    In fact, the health care sector was the lowest ranked area back in mid-November right near the market lows.

    Back then we were pounding the table to buy the dip, especially the unloved small-cap space. Note our sector leadership board from November 17th, where I’ve highlighted the lowly health care space:

    It’s been said that one man’s trash is another man’s treasure. That’s especially true in the stock market.

    Right when the crowd is convinced an area is doomed, sprouts of life tend to emerge. Opportunity arrives right when the majority has given up.

    The first data-driven reason to overweight health care stocks is due to recent outperformance.

    Since the mid-November gloom, medical names have surged 10.18%, second only to the rate-sensitive Real Estate group:

    When I got my start on Wall Street well-over a decade ago, it was etched in my brain to always respect the trend. Momentum is one of the most powerful forces in the stock market.

    Fighting relentless inflows is a losing battle, akin to playing chicken with a freight train…bad idea.

    The recent acceleration in health care stocks is backed by institutional support, exactly what you want to see during a momentum shift. Reason number 2 to own the health care space is simply due to it being the most accumulated area since December 1st.

    Below is a snap shot from our portal revealing how since December, 19% of all inflows are medical names, closely followed by another area I’ve been evangelizing about – Financial stocks:

    This graphic reveals how over the past 6 weeks, 19% of all equity inflows in our database were medical stocks including: the biopharma space, drug distributors, and medical devices.

    Notably, the companies attracting the largest inflows are those where analysts expect large revenue and earnings increases…the 2 single biggest drivers of institutional support.

    In other words, these recent inflows are backed by healthy fundamental tailwinds.

    Up to this point, we’ve got momentum in our favor and money flows…both of which are enough to make a bullish bet.

    But let’s turn to history for another consideration to wager on the space.

    If you recall last week, we studied how stocks perform in presidential election years. Seasonal trends indicate a bumpy Q1 followed by a rip in the back half of the year.

    Since 1996, the S&P 500 struggles in election years returning only 2.8% on average. Diving below the surface reveals which groups perform the best and worst.

    Reason number 3 to overweight medical stocks is that they’ve offered the best return of all sectors in presidential election years back to 1996.

    Below shows how the health care sector gains on average 7.5% during volatile election years, easily besting the S&P 500:

    Now, before you scoff at a 7% gain, remember that recent election years include the Dotcom bust of 2000, the 2008 Global Financial Crisis, and 2020’s COVID-19 pandemic crash.

    It’s a reminder that consumers continue to spend on their health no matter what economic headwinds they face.

    Given the evidence, health care stocks should be worthy of consideration in 2024.

    Let’s wrap up.

    Here’s the bottom line: Investors are obsessed with popular themes like A.I. right now. However, the lowly health care space is revitalizing.

    Recent outperformance, heavy institutional support, and an election year tailwind make the down-trodden area a smart bet in 2024.

    Author: Lucas Downey

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