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May 21 2015, 06.35am GMT


If you are looking for dividends and stability in the megacaps or maybe growth in medical device companies and the biotech sector, there is something for every investor in the health care sector.

When one looks at the most recent numbers, the power that health care stocks have over alternative shares are unbelievably stark. Here are 5 good reasons why health care stocks are a safe bet right now:

  1. Long term stability - There are so many people who spend time speculating what new gadget Apple Inc. (NASDAQ: APPL) will release next; however, reality is that consumer behavior and the future tech landscape is largely unpredictable. Within the health care industry this is different because everyone happens to get sick once in a while and it’s guaranteed that everyone is aging, meaning that the demand for health care stocks is built-in. The facts are that the longer we live, the more health care demand increases, and the increasing living standards across the globe means a lot of money for health care stocks.
  1. Earnings momentum - Despite the category, it looks like health care stocks are on the top of the class. According to a FactSet report for the 1st quarter of 2015, the health care sector thrashed expectations with an impressive 86% of companies managing to beat forecasts, setting a 10.5% average earnings surprise on the quarter.
  2. Big stocks beat big - That said, note that data from FactSet is only based on the S&P 500 index (SPX) components. Some of the biggest stocks in Big Pharma earnings managed to beat expectations in the 1st quarter, these include Bristol-Myers Squibb (NYSE: BMY), increasing 15% year-to-date which was attributed to its massive success from the company’s cancer drugs which fueled a huge 40% earnings per share of 70 cents versus the forecasted 50 cents and way above last year’s earnings of a mere 56 cents.
  1. Word-wide growth potential - This is evident with the continuous modern medicine growth in emerging markets. The World Bank has said that only 5.6% of China’s GDP was spent on health care in 2013, while the Russian Federation came in slightly better at 6.5%; however India is only at 4% of its GDP. These figures are compared to an average of around 10 – 12% typically seen in developed nations like Germany, Canada, Japan and France.
  1. Consistent outperformance - Some of the funds that perform the best in the long term have been focused on health care. Considering SPDR S&P Biotech ETF (NYSE Arca: XBI), which since May 2007 increased 330% versus around 40% for the S&P 500 during the same period. Even the boring Guggenheim ETF since May 2007 is up nearly 180% and the Vanguard Health Care ETF (NYSE Arca: VHT) increased 130%, more than triple the S&P 500’s movement, since May 2007.

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