U.S. health-care companies will rise more than the benchmark index after the Supreme Court decision in favour of President Barack Obama’s overhaul of the industry, amid growing uncertainty over the economy, according to Charles Schwab Corp. (SCHW)
The firm, which has $1.8 trillion of assets worldwide, is increasing its bets on stocks driven by regular cash flows and dividends amid concerns of a global economic slowdown, said Kully Samra, who manages U.K. clients for Charles Schwab.
The U.S. Supreme Court on June 28 upheld the core of Obama’s health-care overhaul, saying Congress has the power to make Americans carry insurance or pay a penalty. The justices also let stand a plan to expand Medicaid by about 16 million people, though they limited the power to punish states that don’t comply.
“We’re turning a bit more defensive now, so sectors such as health care look more attractive,” Samra said in an interview yesterday. “The companies have strong fundamentals and the valuations are pretty decent. There was some uncertainty earlier over the government bill, but the Supreme Court ruling has made that clearer.”
Health-care companies were raised to outperform, the equivalent of buy, from market perform by Brad Sorensen, an analyst at Charles Schwab in a report dated July 12.
An index of health-care equities on the Standard & Poor’s 500 Index has gained about 3.2 percent since the ruling, compared with 3.3 percent for the overall benchmark measure, as of midday New York time, July 19. HCA Holdings Inc. (HCA), the biggest U.S. hospital chain, has risen 5 percent over the same period, while Molina Healthcare Inc. (MOH), a Medicaid insurer, has surged 24 percent.
“Investors will be able, at least in the near term, to focus a bit more on the fundamentals of the group,” Sorensen wrote. “Balance sheets in the health-care sector remain flush with cash, boosting the possibility of higher dividend payments, share-enhancing stock buybacks, and mergers and acquisitions.”
Charles Schwab also downgraded its recommendation on companies in the materials sector to underperform, the equivalent of sell, from market perform as commodity prices decline and the dollar strengthens.
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