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Quarter-End Insights

Health Care: Recent Pullback Opens Door to More Compelling Valuations

We see several stocks with attractive valuations across the different health-care industries.

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  • The recent market pullback has pushed the valuation of the health-care sector to slightly undervalued from slightly overvalued valued, with the group trading close to 5% below our fair value estimates in aggregate and some stocks looking significantly undervalued, including  Amgen (AMGN),  Allergan (AGN), and  Elekta (EKTA B).
  • Despite global macro concerns about slowing growth, we expect overall health-care utilization to remain largely stable given the inelastic nature of health care.
  • Adding to health-care valuations (especially smaller potential health-care targets), 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.
  • Strong drug launches and excellent clinical data in specialty-care areas, such as oncology, are increasing the productivity of drug and biotech companies.

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