of Healthcare Select Sector SPDR ETF (NYSEARCA:XLV) So far, 2023 has been relatively quiet. Despite losing about 1.1% year-to-date, XLV looks like an attractive investment vehicle in the current environment. Here are 5 reasons:
1. Medicine is defensive
Stock markets have been volatile over the past year, and the economy is on a precarious footing, amid a spate of rapid inflation, rising interest rates, and bank failures. So a healthcare ETF like XLV makes a lot of sense in this challenging investment climate.
For example, unlike some of the consumer goods sectors, healthcare is not discretionary spending. In the event of an economic slowdown or recession, many people put off making large purchases such as a home or car and either stick with their current vehicle or hold off upgrading to a larger home for several years.
You may also eat out less, skip vacations, and cut costs in other areas, but remember to spend on your health care needs because you need more than you want. It is highly likely.SPX), which should help investors strengthen their portfolios should economic conditions deteriorate.
Health care is less dependent on overall economic growth, and health care stocks have outperformed in past stagflation environments. So it seems like a good sector for exposure in a challenging macro environment.
2. Health care valuations are modest
Adding to XLV’s defensive positioning is the fact that healthcare sector valuations are relatively modest. The average P/E multiple across XLV was 17.2 times earnings at the end of the first quarter. This isn’t a bargain, but the S&P 500 currently has an average P/E multiple of 23.5, so it’s several turns cheaper than the broader market.
TipRanks’ holdings tool will give you an overview. XLV top holdingsSome of these holdings are trading at fairly attractive valuations. For example, the top 10 holding AbbVie (New York Stock Exchange: ABBV) trades at just 13.4x profit, while Bristol-Myers (New York Stock Exchange: BMY) trades at an even cheaper 8.3x return.
3. Stable and growing dividend
Many of the above individual stocks are AbbVie’s 4%, Bristol-Myers’ 3.4%, Pfizer’s (New York Stock Exchange: PFE) 4.3%. Unfortunately, we hold low-yielding positions and positions that do not pay dividends at all. XLV Dividend Yield 1.5% lower than these individual examples.
That said, it has a solid track record as a dividend payer. XLV has paid out annual dividends to investors for 22 consecutive years and now he has increased the amount of this dividend for more than 13 years. So while the current dividend yield may not sound like much to your heart’s content, investors can have reasonable confidence that XLV’s dividend payout will continue to increase over time.
4. Minimum charge
Another attractive aspect of XLV is the minimal fees paid by fund investors. XLV’s expense ratio is just 0.10%. This means that an investor who invests his $10,000 in XLV today will pay just $10 in fees throughout the year.
Assuming a 5% annual return on investment, an XLV investor would pay just $32 after 3 years, $56 over 5 years and $128 over 10 years (according to the ETF’s prospectus). This is very reasonable. Investing in such low-cost his ETFs is a good way to maintain and grow the overall value of your portfolio over the long term, as fees can actually increase year-on-year.
5. Innovation
So far, we’ve talked about the appeal of this ETF, thanks to its defensive nature, modest valuations, reliable dividends, and low fees. This makes it easy to forget that healthcare stocks also have considerable innovation-based upside.
Many of these companies are working on some pretty amazing treatments and are trying to find cures for diseases and ailments that affect millions of people around the world. Finding and commercializing treatments for these conditions could not only improve the lives of those who suffer from them, but could be a big blockbuster for these companies.
For example, Lilly’s Top 10 holding weight loss drug Munjaro could help fight obesity by helping adults lose 22.5% of their body weight (measured over 72 weeks). The CDC has found that about 40% of Americans are obese, so there is a huge potential market for this type of treatment.
Meanwhile, Eli Lilly is also working on donanemab, a potential treatment for Alzheimer’s disease, and milikizumab, a potential treatment for ulcerative colitis and Crohn’s disease. Evaluate Vantage’s prediction that both will bring annual revenues of over $1 billion in 2028. Other large holdings such as AbbVie and Merck, each developing treatments for diseases such as lymphoma and pulmonary arterial hypertension, have similar blockbusters. potential.
Of course, these types of forecasts should be taken with a grain of salt.
What is your target price for XLV stock?
The analyst community agrees that there are some benefits here as well, and they appreciate it overall. XLV-inventory Moderate purchase. Of 764 analyst ratings for XLV, 61.9% are buy, 35.5% are hold and 2.6% are sell.of Average XLV Stock Target $151.66 implies a 13.5% upside potential from here.
risk
These are the five characteristics that make XLV an attractive investment opportunity, but all investments involve risk and XLV is no exception. XLV owns several pharmaceutical companies, so drugs that have not been approved by the FDA or have not been successfully commercialized are the biggest risks that come to mind. On the other hand, this is a diversified portfolio of healthcare companies, reducing the risk of one drug failing.
Additionally, it is important to note that this is a healthcare ETF and not a biotech or pharmaceutical ETF. Therefore, not all companies listed here develop pharmaceutical products. Top Holding United Group (NYSE: UNH) is an insurance company, while ThermoFisher (New York Stock Exchange: TMO) and Danaher (New York Stock Exchange: DHR), providing equipment to the healthcare industry.
Another industry-wide risk to watch is the White House putting pressure on drug companies to lower prices, but there’s no guarantee this will become law. Additionally, the proposed drug price cap only affects Medicare Part D, so not everyone will be affected.
Finally, we consider UnitedHealth Group’s weight above 9% to be a potential risk. This is not for any reason specific to the company itself, simply because this gives investors in his XLV more exposure to a single stock and keeps them away from ETF diversification.
Future prospects
In conclusion, the XLV ETF looks like a relatively attractive port amidst a storm of market volatility and an uncertain economic outlook.The shares in the ETF are mostly reasonably priced and offer stable dividends. , charges an investor-friendly 0.1% management fee, and invests in defensive sectors that are less dependent on overall economic growth. looks like