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Quarter-End Insights

Health Care: A Strong Run, but Some Stocks Still Look Undervalued

While the sector looks slightly overvalued overall, we still see several stocks that offer attractive valuations across the different industries.

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  • While we view the health-care sector as slightly overvalued in aggregate, some stocks still look undervalued, including the pharmacy benefit manager (PBM) industry.
  • Mergers and acquisitions continue at a rapid pace, as large conglomerates are looking for growth avenues and opportunities to cut costs, partially through lowering taxes for U.S.-based companies.
  • Drug development in specialty-care areas, including virology and oncology, is increasing the productivity of drug and biotech companies, with several recent launches with very high prices reminding the investment community of the strong moats of large pharmaceutical and biotech firms.
  • Even though several years have passed since the worldwide economic downturn, overall health-care utilization remains tepid, but we see early signs of improvement partly spurred by health-care reform in the U.S.

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