The omnipresent headlines about the deadly coronavirus underlines the importance of good, reliable healthcare in the modern world. For many other fundamental reasons it’s time for investors to take another look at the lagging U.S. healthcare sector. Thanks to a perspective drop in the sector’s equity risk premium (ERP), reduced federal regulatory risk and a potential sentiment reset, I upgrade the sector to an Overweight rating from Neutral (my stance since Dec. 2015). I’ll list 14 sector ideas for potential investment.

The past five years haven’t been kind to this sector, which has underperformed the Standard & Poor’s 500 index (SPX) by 1,710 basis points (+46% vs 63% for SPX). The combined headwinds of political backlash in Washington, D.C., extended valuations (for a time) and overly optimistic sentiment offset the sector’s fairly strong top-line and EPS growth.

Nevertheless, I believe the narrative around healthcare is likely to be improving in 2020, allowing investors to become more constructive on the sector.

Healthcare produced dependable growth in the past five years (EPS CAGR +9.6%) but price/earnings (P/E) multiples contracted under the weight of the cumulative headwinds (above) to 16.9 times (-2.3 times discount to SPX) from 17.8 times (+0.3 t...

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