Goldman Sachs sees rays of hope in underperforming health sector
iQoncept
Despite a disappointing start to 2023, the healthcare sector has several promising industries waiting to outperform this year, Goldman Sachs said in a recent report after the bank concluded its annual healthcare conference in Dana Point, California, last month.
The event, held for the 44th time with the participation of more than 200 companies, provides a snapshot of mid-year sentiment in the healthcare sector. Healthcare stocks in the S&P 500 have lost ~5% this year, becoming the third worst-performing sector in the benchmark index.

According to Asad Haider, head of Goldman's healthcare research, the sector recorded one of the lowest first-half performances in at least three decades this year. He attributes the underperformance to regulatory issues, growth concerns, macro rotations, and investors' preference for large-cap tech stocks.
In a small investor survey conducted by Goldman Sachs in conjunction with the event, only 46% expected healthcare to outperform the S&P 500 in H2 2023, while the rest projected an in-line or underperforming sector.
"That said, there were several pockets of optimism," the analyst added, noting that participants in the survey voted MedTech as the subsector most likely to outperform in H2 2023, given the robust procedure volumes seen in Q2.
With 25% indicating bullish views on MedTech, the SMID-cap biotech and life sciences tool makers came in second and third, with 21% and 14% of positive votes, respectively, while dental stocks came in last. At the same time, 12% and 6% of respondents were bullish on managed care and hospitals, respectively.

On one end of the spectrum, medical device makers, which underperformed during COVID, are emerging stronger as surgical and elective procedure volumes recover and normalize amid waning cost pressures. Conversely, post-COVID normalization trends have made it challenging for pandemic beneficiaries like life sciences, tools, and managed care companies.
Meanwhile, M&A was among the most widely discussed topics at the conference, Haider said. The analyst attributes the biopharma's interest in M&A to a potential ~$200B loss in revenue that the sector is expected to lose this decade as some of its major drugs go off-patent.
Pharma and biotech firms are estimated to have spent $85B on acquisitions during the first five months of the year, compared to ~$36B for the same period last year.
The upsurge in M&A activity has already drawn regulatory scrutiny. The Federal Trade Commission (FTC) filed a lawsuit in May to block Amgen's (AMGN) $28B acquisition of Horizon Therapeutics (HZNP), which was set to become the largest biopharma M&A deal last year.
Despite regulatory uncertainty, particularly in relation to larger deals, "the baseline expectation is that there is going to be continued M&A," Haider said, noting that "the pharmaceutical industry will need growth and is sitting on a tremendous amount of cash."
According to Goldman Sachs, the global pharmaceutical industry has $700B in dry powder in the form of cash and leverage to splurge on buyout deals and R&D.
Leading MedTech players: Abbott Laboratories (NYSE:ABT), Intuitive Surgical (NASDAQ:ISRG), Medtronic plc (NYSE:MDT), Stryker Corporation (NYSE:SYK), Boston Scientific Corporation (BSX), Becton, Dickinson (BDX), Edwards Lifesciences (EW) and DexCom (DXCM)
Managed care companies: UnitedHealth Group (UNH), Elevance Health (ELV), CVS Health Corporation (CVS) and The Cigna Group (CI)
Healthcare providers include HCA Healthcare (HCA), Community Health Systems (CYH), Surgery Partners (SGRY), Tenet Healthcare (THC), Universal Health Services (UHS), Select Medical Holdings (SEM)
Leading biopharma companies: Pfizer (PFE), Merck (MRK), Bristol-Myers Squibb (BMY), Eli Lilly (LLY), AstraZeneca (AZN), GSK (GSK), Sanofi (SNY) (OTCPK:SNYNF), Novo Nordisk (NVO), AbbVie (ABBV), Gilead (GILD), Johnson & Johnson (JNJ), Biogen (BIIB), Amgen (AMGN) and Moderna (MRNA)
Life sciences toolmakers: Thermo Fisher Scientific (TMO), Danaher Corporation (DHR), Agilent Technologies (A), Illumina (ILMN)
Dental stocks: Align Technology (ALGN), Henry Schein (HSIC), Dentsply Sirona (XRAY)
More on the outlook for healthcare

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