Healthcare stocks have gotten slammed recently, and Hillary Clinton has gotten the blame.
Since this tweet, healthcare stocks — particularly biotech stocks — have collapsed.
The iShares Nasdaq Biotechnology ETF is down 13% since the September 21 tweet while the iShares US Pharmaceuticals ETF is down 11%.
UBS’s Julian Emanuel called it “The Tweet Heard ‘Round the World.” But Emanuel and other analysts believe this downturn may have presented investors with a buying opportunity.
“In our view, the disorderly liquidation of healthcare stocks may mark not only a bottoming process in the broader equity market (market corrections historically tend to reach their final stages when the stocks that have led the rally are sold, often indiscriminately), but also represents an attractive re-entry point for longer term Health Care investors,” said Julian Emanuel of UBS in a note to clients Friday.
Emanuel said that the fundamentals of the sector should outweigh short-term political uncertainty and emphasised that healthcare and biotech revenues are continuing to grow, unlike the rest of the S&P 500.
Also on the side of buying biotechs is Fundstrat’s Tom Lee.
Lee notes that when sectors drop 20% in a month, like biotechs did at their lows, the drop-off is followed by an average gain of 18% in 6 months. “This highlights that a 20% decline in a month is arguably an over-reaction with rarely a negative follow through,” said Lee in a note Friday.
In addition, Lee noted that when healthcare ETFs had outflows totaling 5% of assets in a month — which has happened 9 times since 2007 — it usually ends up being good news.
“Notably, 6 of 9 times, this level of outflow was actually a bullish signal for the group. That is, the group subsequently managed to post additional gains relative to the broader market,” said Lee.
Lee says that the pricing issue brought up by Clinton is partisan and will likely result in a protracted fight, likely leading to no material impact on the companies for now.
Lee suggest buying large healthcare companies on this dip including Aetna, Express Scripts, and Anthem.