MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
A Look Back At Healthcare Performance In Election Years Yields Clear Trends
Summary
Most investors would agree that elections matter to the performance of healthcare services stocks. Indeed, we see 2016 performance as closely tied to the outcome of the Presidential and Congressional elections. But what may be surprising is the result of our analysis of the S&P 500 vs. S&P 500 Healthcare indices in the last 12 elections. One clear trend: HC outperforms the S&P 500 (and by a lot) in pre- and post-election periods when there is a balance of power in DC. Our top picks in healthcare services are ACHC, MD and UNH.
Key Points
Gridlock in Washington is good for healthcare stocks. When there is joint control in Washington with one party controlling the Presidency and the other party controlling at least one chamber of Congress, the S&P 500 Healthcare outperformed the S&P 500 pre-election (+10% versus +2%) and post–election (+16% versus +12%) on average.
One party control in Washington equals under-performance for healthcare stocks. When there is no joint control in Washington, the S&P 500 Healthcare underperformed the S&P 500 pre-election (-2% versus -0%) and post–election (+1% versus +11%) on average. Note that this performance is independent of which party controls Congress.
Looking at the data on a forward PE basis. The trends remain the same but only more pre-announced with healthcare PEs multiples expanding at a greater pace post-election if there is a balance of power, and decelerating at a greater pace with no balance of power.
Based on our analysis, healthcare service stocks should outperform the market pre-election and post-election but...2016 might prove to be more volatile for healthcare leading up to the election given Washington’s increased focus on drug pricing, continued Republican talks of de-funding or repealing health reform, uncertainty regarding who will be the Republican nominee for President, rising interest rates and the recent use of Executive Order to bypass Congress to enact legislation.
MSUSA Healthcare Services Top Picks. ACHC (Ann Hynes), MD (Ann Hynes) and UNH (Sheryl Skolnick).
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