Why analysts say healthcare’s recent underperformance presents an opportunity By Investing.com

Investing.com – The healthcare sector has consistently underperformed the benchmark over the past 12 months, according to analysts at Wells Fargo.

In a note to clients dated July 1, they added that like most of the broader market, gains in the sector were very narrow, with only a few stocks performing well during that period.

Part of the reason for the weakness in the sector as a whole, they argue, is that the healthcare sector has only a limited number of players exposed to AI. This has weighed on the industry, especially during a period when many investors are focused on growth stocks tied to emerging technology.

Analysts also said the prospect of higher interest rates for a longer period of time has reduced the appeal of defensive health care stocks, small-cap companies and other “interest-rate-sensitive subsectors such as biotechnology.”

The growing popularity of GLP-1-based obesity drugs, while boosting a few companies, has exacerbated “concerns about a potential negative impact on some key healthcare markets,” they added.

However, analysts said investors could face an “attractive buying opportunity” as a result of the weak performance of the healthcare sector, especially as the Federal Reserve may look to cut interest rates this year.

“Given our positive guidance on the sector and optimism about its prospects, we believe the current environment provides long-term investors with the opportunity to build core positions in healthcare names,” the analysts said.