Good Pharma Karma

The healthcare sector is set to contribute to your bottom line

By Michael Rechenthin

The market downturn has been kind to the healthcare sector. The S&P 500 (SPY) dropped 16% since the beginning of the bear market, while the Health Care Select Sector SPDR Fund (XLV) decreased by only 4%.

The healthcare sector appears to be acting like a consumer staple and may recover strongly when the market rebounds.

So, what are some interesting healthcare stock picks?

The XLV healthcare exchange-traded fund is an attractive option for investors seeking to minimize risk and maximize stability.

It consists of the largest health care stocks, such as UnitedHealth (UNH), Abbott Laboratories (ABT), Amgen (AMGN) and Merck & Co. (MRK), as well as other companies in the pharmaceutical, healthcare and biotechnology industries.

By investing in the ETF, investors can benefit from the stability and potential growth of the entire healthcare sector, instead of just a single stock.

For investors seeking greater volatility and a potential for increased gain, Pfizer (PFE) may be an attractive choice. The company has been down 17% year-over-year and has recently taken steps to offer its portfolio of drugs, including chemotherapies and vaccines, to 45 low-income countries.

To capitalize on the high volatility of the stock while still taking a bullish stance, consider purchasing 100 shares and selling an expensive call contract.

With that strategy, investors can benefit from the potential upside while mitigating some of the risk. The current dividend yield of 3.6% is especially beneficial for long-term investors.

Both UnitedHealth Group and Johnson & Johnson (JNJ), two of the most widely traded healthcare stocks, have a strong presence in the industry.

They’re large-cap stocks with similar market capitalizations of around $445 billion. UnitedHealth trades about $1.6 billion of stock per day, while Johnson & Johnson trades roughly $1.4 billion per day.

Both have done well over the past 12 months, with UnitedHealth up 5% and Johnson & Johnson up 3%. Those gains seem considerable because the S&P 500 is down 13% over the same period.

Michael Rechenthin, Ph.D. (aka “Dr. Data”), is head of research and development at tastylive @mrechenthin