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Quarter-End Insights

Healthcare: Even After Uptick, Some Great Values Remain

While valuations in healthcare stocks have improved, we still see opportunities in these undervalued companies.

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  • The recent market uptick in healthcare has pushed the valuation of the sector to slightly undervalued, with the group trading close to 4% below our fair value estimates in aggregate. However, some stocks still look significantly undervalued, including  Amgen (AMGN),  Biogen (BIIB), and  BioMarin Pharmaceutical (BMRN).
  • Despite increasing political rhetoric coming out of Washington, we expect pricing power for drug and biotech companies to remain strong.
  • Adding to some healthcare valuations (especially smaller potential healthcare targets), mergers and acquisitions continue at a rapid pace as large conglomerates look for growth avenues and opportunities to cut costs, partly through lowering taxes.
  • Strong drug launches and excellent clinical data in specialty-care areas, such as oncology, are increasing the productivity of drug and biotech companies.

Damien Conover does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.