Despite having taken a major beating during recent market selloffs, health care stocks are in a position to rebound significantly, indicate reports published today by the Associated Press (AP) and Reuters.
Analysts say hospital stocks, whose value has declined by more than 50% in the wake of a selloff that constituted a response to negative economic news as well as the recent Standard & Poor’s downgrade, could show significant near-term gains. Healthcare was the strongest-performing sector this year prior to the advent of the present conditions.
According to the AP, Gary Taylor, an analyst with Citi, believes that although it is impossible to “definitively call the bottom”, the current valuation affords “an enormous range of error with respect to forward estimates.”
In the AP report, Taylor is quoted as saying Medicare will likely to impose a 2% across-the-board cut to reimbursement later this year because of Congressional gridlock. However, he contends, the discounts to the stock prices are far below what is realistic.
Meanwhile many other analysts anticipate potential health care stock rebounds of at least 15%.
"The reaction by and large is probably overdone," Bob Phillips, co-founder of Spectrum Management Group, Indianapolis, Indiana, tells Reuters. "A number of these stocks are still paying great dividends and valuations are incredibly great. Demographically, no matter how you shake it, the population is aging, people will require more healthcare as they age."
Phillips adds that Spectrum Management Group is “comfortable” with the overall health care sector. The company expects the latter will fare well over the next decade, whether or not the government is the direct payor.
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