Finding Value in Health Care

Beyond the Headline Noise: Finding Value in Health Care

Peter Hardy, CFA, Vice President, Client Portfolio Manager, Value Equity
Nathan Rawlins, CFA, Investment Analyst, Value Equity
Adam Zghall, CFA, Investment Analyst, Value Equity

Executive Summary

The health care sector is diverse. It spans a wide range of businesses—from the traditional plays of hospitals, health care providers, and pharmaceuticals to high-tech medical equipment and biotechs. This wide scope necessitates an in-depth understanding of many different industries and the companies within them.

Health care stock prices can be influenced by headlines and political rhetoric over the short term. Since mid-2016, these stocks have been on both the losing and winning side of investor sentiment. Uncertainty surrounding the Affordable Care Act (ACA) will continue to be a source of volatility for health care stocks, but we believe this creates opportunities for patient investors focused on company fundamentals rather than headline noise.

To find opportunities, the Value Equity team at American Century Investments focuses on health care stocks that are high quality and invests while they are attractively valued due to transitory reasons. Using a bottom-up approach, our analysts carefully assess the fundamentals of each company within our universe and calculate proprietary risk/reward ratios for each. Companies we follow range from $2 billion to $356 billion in market capitalization.

In this paper, we dissect the health care sector into five distinct segments and demonstrate how we use our in-depth, fundamental analysis to extract the most interesting opportunities within each space:

  • Pharmaceuticals and biotechnology
  • Medical equipment and supplies
  • Pharmacy benefit managers (PBMs) and drug distributors
  • Health care facilities and providers
  • Managed care organizations

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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.