Why healthcare will win big after US election

The conclusion to the US presidential campaign later this year is likely to benefit healthcare stocks if it leads to political inertia as expected, according to Evan Bauman, manager of the $2.6bn Legg Mason ClearBridge US Aggressive Growth Fund.
Bauman, whose fund is overweight the US healthcare sector, said the past seven years under the Obama administration have been less than favourable for healthcare companies with policies such as the Affordable Care Act colloquially referred to as ‘Obamacare’.
However, with the administration coming to an end at the close of the year, and a split between the houses very possible, Bauman said he expects the healthcare sector to be re-rated.
“I would not be surprised if a resolution to the election ends up being a huge catalyst for the healthcare stocks, regardless of the outcome,” he said.
“If congress remains either split, or a contrary party to the administration that wins the election, we are likely to see a gridlock scenario where nothing gets done. This would be very favourable for healthcare companies.”
Healthcare has underperformed the wider market over the last year, with investors avoiding the sector because of concerns over the potential implementation of policies designed to reduce the profitability of healthcare companies. Bauman said the policies scared investors away from companies operating in the industry.
“Since last summer, the healthcare sector has seen liquidation trades, where buyers strike, with $11bn pulled out of healthcare related funds, or healthcare dedicated funds in the US,” he said.
However, the manager believes this negative sentiment towards healthcare has gone too far, creating a tremendous value opportunity which could be realised after the election. As such, the fund is currently overweight the sector, with positions in stocks such as Amgen, Biogen, and Allergan among his top holdings.
“There is now tremendous value in the healthcare sector, and we have accessed very attractive valuations, especially given the tremendous growth prospects,” Bauman said.
The manager added companies within the healthcare industry now look similar to the energy sector at the start of the year, when valuations went into freefall following the collapse in the oil price.
Bauman said: “We saw a giant margin call occurring with energy companies at the start of the year, and shares in companies such as Freeport are now trading at more than triple the price seven months ago. Prior to the rally good assets were trading at really cheap valuation levels, and I believe that is what we are now seeing in healthcare.”