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Stock Strategist

Recession Proof? Not These Health-Care Stocks

These 5-star picks are sensitive to the economy.

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As my colleague Alex Morozov points out in his article "Sizing Up the Heath-Care Haven," overall health-care spending has moved independently of general economic activity throughout U.S. history, making the health-care industry a relative safe haven for investors during recessionary times. While this knowledge underpins our valuations for firms in pharmaceuticals, cardiac devices, and diagnostics, a separate health-care niche exists where the exact opposite holds true. Here, medical insurance is not accepted, procedures and products are elective rather than essential, and demand fluctuates wildly around economic conditions. This is the reality for firms competing in the laser vision correction and plastic surgery markets.

With consumer confidence readings at multiyear lows and unemployment rates rising, stocks in the luxury health-care sector have been uniformly beaten down, as investors anticipate large cutbacks in discretionary spending. However, we expect the markets for LASIK, breast implants, and Botox to each behave differently during an economic downturn. In this article, we'll separate the winners from the losers, and use scenario analysis to explain why one 5-star stock is a particularly compelling value.

Jeff Viksjo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.