The health care sector may have underperformed this year, but Goldman Sachs says some stocks in the space are buys heading into 2020.
This year, only one of these stocks have outperformed the market. Dentsply Sirona has returned 54% since the beginning of 2019, compared to the S&P 500’s return of 27%. Amgen and United Health have returned 17.57% and 24.28%, respectively.
“Counter-intuitive as it may be into an election year, we exit 2019 with a constructive bias toward much of [health care] in 2020,” Goldman Sachs analyst Asad Haider wrote in a note, adding that valuations in the sector are low.
While Haider said the possibility of Medicare for All is declining, “Drug pricing will remain a focal theme through next year’s campaign trail, though we believe changes will likely continue a pattern of being evolutionary rather than revolutionary.”
For the three new Conviction List buys, Haider said Amgen will benefit from earnings growth and new drug data, and has “higher confidence” in UnitedHealth Group’s earnings. As for Dentsply Sirona, Haider wrote that the dental equipment maker should benefit from a growing market share.
Goldman Sachs analyst Terence Flynn recently reiterated his Buy rating on Amgen and issued a price target for the stock of $270, 11.6% higher than the current price. Haider said that Amgen’s purchase of the psoriasis drug Otezla from Celgene should help boost the company’s revenue and earnings.
Haider went on to say that UnitedHealth Group was added to the firm’s Conviction List due to expectations surrounding the insurer’s near-term earnings and projected longer-term earnings growth. Haider wrote that shares are currently trading at a bit of a discount “perhaps due in part to the uncertainty of the 2020 election.”
The firm rates UnitedHealth Group a Buy and has a price target of $330—12.7% higher than the price as of this writing—on the stock.
As for Dentsply Sirona, Goldman issued a Buy rating on the stock with a price target of $66 – 15% higher than the current price.
Haider wrote that Dentsply Sirona’s new intramural scanner—the Primescan—has seen strong demand and said that the firm forecasts “another year of strong sales for Primescan, especially as XRAY continues to expand its availability in new geographies and considers running additional upgrade programs.”