Eq: Healthcare (5)
In what seems one of the most predictable outcomes of the Coronavirus pandemic, asset managers have decided to pounce and launch virus-specific ETFs. Pacer ETFs has just launched the Pacer BioThreat ETF (ticker: VIRS, of course), which tracks a custom index which follows “U.S.-listed stocks of companies that help protect against or recover from biological threats to human health based on a proprietary, multi-step research process”. Other providers, such as EQM, are doing the same.
FINSUM: This is not as gimmicky as it sounds. Companies that have businesses that benefit from coronavirus are going to be a sustained investment focus for some time.
We can finally put a number on it. Anecdotal evidence has shown that airlines and other travel companies are getting hammered. Now analysts have an estimate of just how much of a hit airlines are going to take. The answer is more than $100 bn of lost business because of coronavirus. The specific figure is $113 bn, a 4x increase in forecasted lost revenue from just two weeks ago. Big airlines like Delta, United, and Southwest have been cutting routes and flights left and right.
FINSUM: These stocks have gotten pummeled because of Coronavirus. When is the right time to buy in?
How about some stocks with good income that should stand up well to the coronavirus scare? Sounds good. Well, take a look at the most obvious sector for such: healthcare. Healthcare stocks have great dividend yields right now and should be impervious to coronavirus by definition. Plus, they have a tailwind that only really arrived yesterday—a resurgent Joe Biden, who does not want to tear up the status quo of US healthcare. A couple good funds for this are the SPDR XLV or HGHAX.
FINSUM: This seems like a very good call—good income and a natural defensiveness to the virus scare. Plus, Biden’s resurgence should be positive.
The reality of the political environment in the US is making one thing very clear: it is a tentative time to buy or own healthcare stocks. While healthcare companies are currently performing well, the market is growing increasingly bearish about them, and with good reason. Democratic candidates have proposed an array of new national healthcare plans that all have degrees of disruption, some of them massive, to the status quo. That means the healthcare industry is facing a problem that is very hard to control and could cause extensive changes to their current operating paradigm.
FINSUM: Unless healthcare gets so beat up that it is worth taking a risk on the stocks just as a bet that the Democrats don’t win the election, it seems like there is asymmetric risk reward in the sector right now.
US investors got spooked yesterday by the Democrats’ “healthcare for all” proposal to bring universal socialized care to all Americans. The big fears manifested themselves in insurance stocks, which were hit considerably. However, the proposal has little chance of getting approved as it will certainly be blocked by the Senate. Even if a Democratic president gets elected, it is unlikely the Democrats would gain the 60 seats in the Senate necessary to approve such a move. Therefore, most analysts expect insurance stocks to recover, though not immediately.
FINSUM: We do not think that this plan will come to pass any time soon, but we do think the country is headed in that direction because of the leftist leanings of Millennials, who will slowly gain political power.