Investors eye discounted U.S. healthcare sector as Biden’s lead in polls grows

By Lewis Krauskopf



FILE PHOTO: Pharmaceutical tablets and capsules are arranged on a table in this picture illustration taken in Ljubljana


© Reuters/Srdjan Zivulovic
FILE PHOTO: Pharmaceutical tablets and capsules are arranged on a table in this picture illustration taken in Ljubljana

NEW YORK (Reuters) – Investors are looking for bargains among healthcare stocks, even as prospect of a Democratic “Blue Sweep” in next month’s elections threatens more volatility for a sector already trading near a historical discount to the broader market.

Loading...

Load Error

A victory by former Vice President Joe Biden over President Donald Trump on Nov. 3 and a potential Democratic takeover of the Senate could clear the way for prescription drug price and healthcare coverage reforms, generally seen as potential negatives for companies in the sector.

Some investors are betting these factors have already been priced into healthcare shares or may not be as detrimental as feared, while the companies stand to benefit from relatively stable earnings prospects and their medical innovations.

“For high-quality companies that are trading at reasonable valuations … there is a strong argument to be made for adding some healthcare exposure to portfolios,” said James Ragan, director of wealth management research at D.A. Davidson.

Biden’s improving election prospects have weighed on healthcare stocks for much of 2020, according to investors, with the S&P 500 healthcare sector <.spxhc> climbing just 7% since the end of April, against a 17% gain for the overall S&P 500 <.spx>.

A Reuters/Ipsos poll on Sunday showed Biden opened his widest lead in a month after Trump contracted COVID-19.

The healthcare sector now trades at a 26% discount to the S&P 500 on a price-to-earnings basis, according to Refinitiv Datastream. The sector’s 15.8 P/E ratio is well below the S&P 500’s 21.3 ratio, which last month rose to its highest valuation since 2000.

The gap between the sector’s P/E ratio and that of the S&P stood at its widest in at least 25 years last month, though it has narrowed in recent weeks.

“As Biden started to do better in the polls, you saw healthcare start to underperform a bit as the rest of the market recovered,” said Ashtyn Evans, a healthcare analyst with Edward Jones.

While Biden may shake up insurance coverage by offering a “public option” government plan, he is also expected to seek to strengthen the Affordable Care Act – the signature healthcare law enacted when he was vice president – under which companies are used to operating.

Any significant drug pricing legislation may need to wait until the pandemic is more contained, as the government relies on the pharmaceutical industry to develop COVID-19 therapies and vaccines. Trump has also vowed to lower drug prices, making the issue arguably less partisan.

“We think there remains a reasonably good probability that the next Congress will institute moderate health policy changes that will create long-term clarity for the sector and investors,” Eric Potoker, an analyst at UBS Global Wealth Management, said in a note last month.

Healthcare stocks have been prone to volatility around elections.

Ahead of the 2016 vote, which pitted Trump against former Secretary of

Should Peloton Investors Worry About Apple’s New Fitness Service?

Apple (NASDAQ:AAPL) recently unveiled Apple Fitness+ as the latest addition to its suite of subscription services. Demand for interactive fitness services is booming, as evidenced by Peloton Interactive‘s (NASDAQ:PTON) explosive growth over the last year. With a large installed base of active devices, Apple could gain traction quickly in this market. Should Peloton investors be concerned?

Apple joins a crowded market

Peloton still makes most of its money from selling exercise equipment. Subscription revenue made up 20% of its top line in fiscal 2020 (which ended June 30). This amount includes the $39 per month fee that users pay to access workout programs on their Peloton Bike or Tread. It also includes the $12.99 per month fee members pay to access workout programs through the Peloton digital app.

A woman exercising at home.

Image source: Getty Images.

Peloton finished the last quarter with 1.09 million connected fitness subscriptions, up 113% year over year. Paid digital subscriptions through the app grew 210% year over year but only totaled 316,800. 

The Peloton digital subscription is included with all connected fitness subscriptions made with a Peloton Bike or Tread. The app was initially offered as a supplement for Bike and Tread owners to access classes while away from their equipment. As of June 2020, 67% of connected fitness product users engaged with the Peloton app to supplement their workout routine.  

Keep in mind that Peloton digital app subscriptions have grown rapidly despite the availability of Nike‘s (NYSE:NKE) Training Club app, which is free to use. Lululemon Athletica also offers exercise classes on its website, not to mention the content available on the Mirror platform that Lululemon recently acquired. There’s plenty of competition out there, and it hasn’t fazed Peloton. 

As for Apple’s new offering, Fitness+ will cost $9.99 per month, or users can access it through the Apple One Premier plan, which bundles several services together, for $29.95 per month. 

The main selling point for Fitness+ is that the service will include special integration features with the Apple Watch. In fact, Apple says Fitness+ was specifically designed for that wearable device. The app will intelligently incorporate metrics from Apple Watch to offer a “first-of-its-kind personalized workout experience.”

Apple’s advantages

It’s a major advantage for Apple that Fitness+ will be integrated into every active device through the new Fitness app on the iPhone, which the company says it will also be available on iPad and Apple TV. 

The company already has a massive built-in user base with more than 1.5 billion active devices around the world. If Peloton’s digital subscription growth is any indication, Fitness+ could be one of the more popular services when it launches later this year. It helps Apple that Fitness+ is slightly undercutting the subscription price of the Peloton app by a few dollars too.

Apple is tapping into a big opportunity. Peloton reported that more of its members are getting interested in non-cycling workouts, such as stretching, yoga, and strength training classes, among others. For fiscal 2020, Peloton said that 38% of

Investors Extracted $400 Million From a Hospital Chain That Sometimes Couldn’t Pay for Medical Supplies or Gas for Ambulances

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

In the decade since Leonard Green & Partners, a private equity firm based in Los Angeles, bought control of a hospital company named Prospect Medical Holdings for $205 million, the owners have done handsomely.

Leonard Green extracted $400 million in dividends and fees for itself and investors in its fund — not from profits, but by loading up the company with debt. Prospect CEO Sam Lee, who owns about 20% of the chain, made $128 million while expanding the company from five hospitals in California to 17 across the country. A second executive with an ownership stake took home $94 million.

The deal hasn’t worked out quite as well for Prospect’s patients, many of whom have low incomes. (The company says it receives 80% of its revenues from Medicare and Medicaid reimbursements.) At the company’s flagship Los Angeles hospital, persistent elevator breakdowns sometimes require emergency room nurses to wheel patients on gurneys across a public street as a security guard attempts to halt traffic. Paramedics for Prospect’s hospital near Philadelphia told ProPublica that they’ve repeatedly gone to fuel up their ambulances only to come away empty at the pump: Their hospital-supplied gas cards were rejected because Prospect hadn’t paid its bill. A similar penury afflicts medical supplies. “Say we need 4×4 sponges, dressing for a patient, IV fluids,” said Leslie Heygood, a veteran registered nurse at one of Prospect’s Pennsylvania hospitals, “we might not have it on the shelf because it’s on ‘credit hold’ because they haven’t paid their creditors.”

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

In March, Prospect’s New Jersey hospital made national headlines as the chief workplace of the first U.S. emergency room doctor to die of COVID-19. Before his death, the physician told a friend he’d become sick after being forced to reuse a single mask for four days. At a Prospect hospital in Rhode Island, a locked ward for elderly psychiatric patients had to be evacuated and sanitized after poor infection control spread COVID-19 to 19 of its 21 residents; six of them died. The virus sickened a half-dozen members of the hospital’s housekeeping staff, which had been given limited personal protective equipment. The head of the department died.

The litany goes on. Various Prospect facilities in California have had bedbugs in patient rooms, rampant water leaks from the ceilings and what one hospital manager acknowledged to a state inspector “looks like feces” on the wall. A company consultant in one of its Rhode Island hospitals discovered dirty, corroded and cracked surgical instruments in the operating room.

These aren’t mere anecdotes or anomalies. All but one of Prospect’s hospitals rank below average in the federal government’s annual quality-of-care assessments, with just one or two stars out of five, placing them in