2023 wasn’t a very good 12 months for the health-care sector, but some investors expect it to make a comeback this 12 months — highlighting biotech and medical tech as areas to look at. “Emerging from a poor capital raising environment in ’22-23, where early-stage biotech firms grappled to fund their Research and Development efforts amid rising rates of interest, the battered sector finally is seeing a revival in Mergers and Acquisition deals as the brand new 12 months begins,” Citi Global Wealth Investments said in a Jan. 14 note. There’s already been about $9.6 million price of transactions to this point in January, the bank noted. As a sector, health care underperformed the broader market last 12 months, with the iShares U.S. Healthcare ETF gaining only around 2% for 2023. But now, Citi believes that “astute investors may find themselves with a trove of rebound opportunities.” It urged investors to reflect on the “inherent resilience” of health care over the long run, noting that the sector recorded positive earnings growth over the three recent global earnings recessions. “As macro tides shift, we see health care as an unstoppable trend beneficiary, with growth prospects well beyond the anti-obesity drugmakers,” Citi said. GLP-1 (glucagon-like peptide-1) drugs, originally developed as a treatment for diabetes but now popularly used for weight reduction, shook up the sector last 12 months. The health-care industry “appears able to return to leadership,” given demographic shifts and the advantages of artificial intelligence, the bank said. “We expect the healthcare earnings recovery in 2024 to be certainly one of the important drivers of potential outperformance within the sector,” it added. Investing picks and suggestions Citi said it’s “particularly drawn to” discounted valuations within the medical technology and tools segments, while biotech “looks like a high-risk, high-reward bet” as rate of interest cuts are expected to start. Growth stocks such those in tech and biotech normally profit from rate cuts. Citi’s top picks in biotech include Biomea Fusion , Alnylam Pharmaceuticals , and Immunovant . Jared Holz, health-care sector strategist at Mizuho Securities Americas, named biotech firm Biogen as certainly one of his top trading ideas for 2024. He said 2024 looks prefer it’ll be a greater 12 months for Biogen because it appears set for a “full-year” of sales in its Alzheimer’s treatment Leqembi. He noted that Biogen is coming up with an injectable version that “should improve uptake dramatically longer-term.” Holz added that Biogen stays in a “solid position” to accumulate other assets and is sufficiently small that it could in some unspecified time in the future even be a goal for acquisitions itself. As for medtech, Citi described some medical device makers as “mandatory ‘picks and shovels’ for drug development.” Some work along with biopharmaceutical partners in areas akin to the formulation and packaging of medicine, while others produce devices worn or implanted within the body for conditions akin to heart disease or diabetes. Citi highlighted one other investment opportunity: the makers of kit utilized in robotics-assisted surgery. And Trent Masters, global portfolio manager at Alphinity, on Tuesday flagged surgical robotics maker Intuitive Surgical as certainly one of his “top conviction calls.” “Most of medtech got severely impacted by GLP1 mania in October last 12 months, where it seemed the expectations were that GLP1 drugs were going to make everyone healthier and take away the necessity for procedures,” he said. “But what we’re seeing now across medtech is more nuance around longevity being a positive for procedures to balance out the potential loss from a healthier population,” Masters added. As for individuals who’d relatively spend money on an exchange-traded fund than in individual stocks, Matt Orton, chief market strategist at Raymond James Investment Management, says he prefers the health-care sector without delay and likes the iShares U.S. Medical Devices ETF. “Biotech has commanded everyone’s attention, however the recovery of many best-in-class medical device firms post the GLP-1 selloff has been remarkable,” Orton said. “I feel there remains to be room to run for names like DexCom , Intuitive Surgical, Abbott Laboratories and this ETF is the perfect method to get exposure,” he added.
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