Premium valuations get there for a reason

Deutsche Bank is out with some dour news on Q1 earnings trends. They note that only 62% of the 201 S&P 500 names that have reported through Friday are beating Street estimates on profit while an embarrassing 31% are beating on revenue. DB notes that this sets up the quarter for 0% year-over-year growth. And this is before the bulk of the energy sector’s reports get underway.

One bright spot is the Health Care sector, which has been leading the market for a while and the first place the skeptics will point to as being in a bubble. I think it’s fair to say that health care stocks are expensive relative to the market and to their trailing 12 months’ earnings, but is this, by definition, proof of a bubble?

Nope.

It’s proof of one simple fact: Health care companies are crushing right now, both relatively and absolutely. They’ve delivered a total return over the last 12 months north of 30% while the S&P 500 has done closer to 15%. The justification for this outperformance comes in the form of fundamentals…

via Midway 1Q earnings season update: Barely clearing a low bar (Deutsche Bank – April 26th 2015):

Health Care is delivering the best sales growth of all the S&P. It had 15%+ EPS growth on 10%+ sales growth in 2Q14–4Q14. Operationally this strong growth continued in 1Q, as despite FX headwind, blended EPS and sales growth is now 10%. All Health Care industries are posting double digit sales growth except Pharma and Life Sciences Tools & Services. Biotech leads with 23% y/y sales growth and 44% EPS growth.

We believe strong sales/EPS growth trends at HC will continue. It is trading only 1pt higher than S&P 500 on 2015 EPS, but it is not cyclical and has significant PE upside if real long-term bond yields stay well below history as the Fed hikes.

My chart below is the XLV:SPY ratio chart, which has been trending higher since Blurred Lines was on the radio every 15 minutes and has barely missed a beat through the Uptown Funk / Shake It Off era. In the panes below, price performance (%) for the XLV Healthcare Sector SPDR followed by price performance (%) of the SPY itself.

xlv

Premium valuations get there for a reason, premium performance too.

Oh, also I think we can stop referring to the health care sector as “defensive” at this point too. They’re not exactly selling girdles and goiter pills anymore.

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. best kona coffee commented on Oct 26

    best kona coffee

    Best Kona coffee how to guide for coffee beans. Assisting you in your choice, the following are useful steps on best practices picking the best Kona coffee beans. #1 RULE: Never reheat your Kona coffee.

  2. armytrix exhaust tuning price commented on Oct 27

    armytrix exhaust tuning price

    […]that is the end of this report. Here you’ll uncover some web-sites that we assume you will enjoy, just click the links over[…]

  3. kegel exercises for women commented on Oct 27

    kegel exercises for women

    […]we came across a cool internet site that you could possibly enjoy. Take a appear if you want[…]

  4. huge vibrator commented on Oct 28

    huge vibrator

    […]Sites of interest we’ve a link to[…]

  5. how to give a blow job commented on Oct 28

    how to give a blow job

    […]Here is a superb Weblog You may Uncover Exciting that we Encourage You[…]

  6. cyberskin sleeve commented on Oct 28

    cyberskin sleeve

    […]Here is a great Blog You might Locate Fascinating that we Encourage You[…]

  7. best rated female vibrator commented on Oct 28

    best rated female vibrator

    […]Every as soon as in a while we select blogs that we study. Listed beneath would be the newest web sites that we pick out […]

  8. mini magic wand commented on Oct 29

    mini magic wand

    […]here are some links to websites that we link to because we consider they’re worth visiting[…]

  9. opportunity commented on Oct 29

    opportunity

    […]just beneath, are many completely not associated web pages to ours, even so, they’re certainly worth going over[…]

  10. magic bullet vibrator commented on Oct 29

    magic bullet vibrator

    […]The information and facts mentioned within the report are some of the best available […]

  11. adidas ultra boost commented on Oct 30

    adidas ultra boost

    […]always a massive fan of linking to bloggers that I like but really don’t get a lot of link appreciate from[…]

  12. دوربین مدار بسته ارزان قیمت commented on Oct 30

    دوربین مدار بسته ارزان قیمت

    I’m actually loving the topic/design of your world wide web site. Do you at any time operate into any web browser compatibility concerns? A small variety of my weblog viewers have complained about my website not doing work appropriately in Explorer but…

  13. rabbit vibrator online commented on Oct 30

    rabbit vibrator online

    […]here are some links to web sites that we link to mainly because we consider they are worth visiting[…]

  14. best finger vibrator commented on Oct 30

    best finger vibrator

    […]just beneath, are numerous completely not connected web sites to ours, on the other hand, they are surely worth going over[…]

  15. manual penis vacuum pump commented on Oct 31

    manual penis vacuum pump

    […]just beneath, are various entirely not associated web-sites to ours, nonetheless, they may be surely really worth going over[…]