Investors are looking for sectors that can still generate some income amid fears of rampant inflation and aggressive actions by the US Federal Reserve.
health and biotechnology
The healthcare industry is often slow, but the market turmoil may reveal that this is one of the safest sectors for showing growth, and not just for the next quarter. Some healthcare companies have steady earning power and dividend quality that can be good for investors. S&P’s healthcare sector, Health Care Select Sector SPDR Fund, topped the S&P 500 this year. In the first half, the health index dropped just 9%, while the S&P 500 lost nearly 21% over the same period. During the second quarter, the Health Care Select Sector SPDR Fund was down 6.4%, while the S&P 500 was down 16.4%.
Health Care Select Sector SPDR Fund YTD Chart/Credit: CNBC Sam Stovall, chief investment strategist at research firm CFRA, identified a few companies in healthcare subsectors that investors might consider, including HCA Holdings (HCA), Pfizer (PFE), Tandem Diabetes Care (TNDM), Patterson Cos. (PDCO), Align Technology (ALGN) and Walgreens Boots Alliance (WBA). The biotechnology subsector has seen high-growth names, so Stovall believes it’s time to start considering investing. The ETF iShares Biotechnology (IBB) is exiting its lowest level, even though it remains below its 52-week high of $177.37 a share.
iShares Biotechnology ETF YTD Chart/Credit: CNBC David Bianco, Chief Investment Officer, Americas, DWS Group, mentioned Abbvie (ABBV) and Amgen (AMGN) as the names that can demonstrate good performance in the biotechnology sector.
Bianco is one of those favoring the idea that banking stocks could do very well by the end of this year. He mentioned financial institutions JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC), Citigroup (C) and PNC Financial (PNC). “Sector profitability is driven by short-term interest rates, not the shape of the yield curve,” said Bianco. He said that if there is a recession, it will not be because of the banks, unlike in 2008.
Know more: 5 Bank Stocks to Invest in and Profit from High Interest Rates If In Doubt, Look at Cash Flow Julian Emanuel, director of equity, derivatives and quantitative strategy at Evercore ISI, said: is looking for stocks with characteristics that could help beat both inflation and a weak economy, but also outperform.
Its main criterion is that companies have to generate lots of free cash flowand must be stocks that are largely short.
Their pick list includes a mix of industries, but energy names were among the biggest free cash flow generators. it is expected that the Western Petroleum (OXY)for example, has a free cash flow of 25.5%, and that the Ovinitiv (OVVV) 24.7%, according to Evercore estimates.
Know more: Why Warren Buffett Keeps Buying Millions Of Dollars From This Stock Emanuel’s list corroborates the first topic, about the healthcare industry, as it also contains the Omega Healthcare (OHI), with an estimated free cash flow of 12.3%. To start investing in US stocks, create an account with Passfolio, an official Stocktimes partner.