A checkup on health care

The health-care sector’s exposure to government spending and legisla­tion is one of the greatest challenges facing health-care stocks today. For example, stocks struggled in the months preceding the passage of the Patient Protection and Affordable Care Act in March 2010, and did not begin to recover until investors gained a better understanding of the legislation’s impact on business fundamentals. However, just as reform worries eased, new concerns emerged related to the U.S. budget deficit. Given the potential for more than $1 trillion in budget cuts over the next decade, Medicare — which accounts for a signifi­cant portion of the U.S. budget — is particularly vulnerable. The same pain is being felt in international markets — and in Europe in particular, where debt crises have escalated and many governments are cutting health-care spending in an effort to reduce budget deficits.

Despite the macroeconomic challenges, investors can find an array of growth opportunities across this diverse sector. What’s more, health-care stocks in most subsectors are attractively priced. Recent market downturns have led to historically low valuations, as measured by the S&P 500 Health Care Index.

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As we explore in our white paper, compelling investment opportunities can be found to different degrees across the pharmaceutical, biotechnology, medical technology, and managed-care subsectors. In addition, we discuss how the emerging markets may host some of the sector’s strongest growth opportunities — but also pose unique challenges for investors.

Read Putnam’s white paper.