RYH Offers a Balanced Diet to Healthcare Stocks

Healthcare stocks are dropping due to severe market weakness this year, among other factors, but the sector’s performance isn’t as weak as the S&P 500.

Some of the relevant exchange-traded funds confirm this. For example, file Invesco S&P 500 Equalweight Health Care ETF (RYH) It’s outperforming the S&P 500 by about 500 basis points a year now, and that means something because equal weight ETFs tend toward smaller stocks, and small-cap healthcare names are among the most disapproved names in the sector today.

Notably, some compelling healthcare names are trading at more attractive valuations thanks to market dips in 2022. This group includes not only companies with lasting competitive advantages, but also some components of RYH.

“The strongest long-term opportunity for healthcare companies lies primarily in three industries: pharmaceutical manufacturing, medical devices, and diagnostics and research,” Morningstar analyst Benjamin Slupecki wrote. “Almost all of the best healthcare companies to invest in – 20 of the 21 on our list – have intangible assets that provide a wide moat against competitors. This intangible asset advantage often derives from patents or proprietary technology.”

In terms of value, roughly a third of RYH’s components are rated as value stocks, but that doesn’t mean the fund is not well positioned for a potential growth rebound. Approximately 30% of its member companies are classified as growth stocks.

Another point in RYH’s favor is that many of its holdings materialize from the wide trench fund – one of its pillars is intangible assets. And there is still more.

“Eight out of the 20 companies that have a moat driven by intangible assets have an additional source of moat, either with a cost advantage or high conversion costs,” added Slobecki.

The medical device space is a reliable option for investors looking for companies with rich intangible assets and cost advantages. RYH allocates 45% of its weight to healthcare equipment manufacturers and life sciences instrument makers.

“Medical devices, for their part, have high conversion costs because surgeons develop their expertise in using a disparate set of instruments and device systems that have component parts to work together,” Slubicki noted.

Medtronic (NYSE: MDT), Stryker (NYSE: SYK) and Zimmer Biomet Holdings (NYSE: ZBH) — all with strong intangible assets — are members of the RYH portfolio. Several RYH member companies from the medical diagnostics industry have intangible assets and cost-switching advantages, according to Morningstar.

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Opinions and expectations herein are those of Tom Lydon only, and may not actually come true. The information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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