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When investors expect economic growth to slow, interest in defensive sectors — health care and utilities — tends to perk up. This has been happening during the third quarter.
Below is a list of 20 favorite stocks in both sectors among Wall Street analysts.
Read: Goldman Sachs trims U.S. growth outlook
Here’s how the 11 sectors of the S&P 500 Index
SPX,
have been performing:
| S&P 500 sector | Total return – June 30 through Aug. 27 | Total return – 2021 | Total return – 2020 | Total return – 3 years | Total return – 5 years |
| Utilities | 8.4% | 11.0% | 0.5% | 42% | 66% |
| Communications Services | 7.7% | 28.8% | 0.0% | 88% | 90% |
| Information Technology | 7.0% | 21.7% | 43.9% | 119% | 277% |
| Health Care | 6.9% | 19.5% | 13.4% | 55% | 103% |
| Financials | 6.3% | 33.6% | -1.7% | 46% | 121% |
| Real Estate | 5.7% | 30.3% | -2.2% | 55% | 70% |
| Materials | 4.4% | 19.6% | 20.7% | 53% | 96% |
| Consumer Staples | 3.2% | 8.4% | 10.7% | 46% | 54% |
| Industrials | 2.4% | 19.2% | 11.1% | 44% | 92% |
| Consumer Discretionary | 1.3% | 11.7% | 33.3% | 63% | 140% |
| Energy | -8.4% | 33.3% | -33.7% | -23% | -12% |
| S&P 500 Index | 5.2% | 21.2% | 18.4% | 64% | 129% |
| Source: FactSet | |||||
During the third quarter, the utilities sector has been especially strong, especially when considering that it is a laggard for all of 2021. Health care has also made a good third-quarter showing, while performing much better for 2021. (All performance figures in this article include reinvested dividends.)
A look at forward price-to-earnings valuations points to a discount for the health-care sector:
| Sector | Forward P/E | Average forward P/E – 20 years | Current valuation to index | Average valuation to index |
| Health Care | 17.7 | 15.4 | 83% | 98% |
| Utilities | 20.0 | 14.8 | 93% | 94% |
| S&P 500 Index | 21.4 | 15.7 | ||
| Source: FactSet | ||||
By these numbers, the health-care sector is trading for a discount to the full index that is notably higher than normal.
Meanwhile, the utilities sector on average is trading closer to the index than it has. The prolonged low-interest-rate environment may help explain the higher valuation for the utilities sector, which is associated with attractive dividend yields.
Then again, the stock listed below with the second-highest dividend yield is Merck & Co.
MRK,
Stock screens for health care and utilities
Starting with the 92 stocks in the S&P 500 health-care and utilities sectors, here are the 20 stocks with majority “buy” or equivalent ratings among analysts polled by FactSet that have the highest upside for the next year, implied by consensus price targets:
| Company | Industry | Share “buy” ratings | Closing price – Aug. 27 | Consensus price target | implied 12-month upside potential | Dividend yield |
|
Incyte Corp. INCY, |
Biotechnology | 60% | $75.68 | $102.47 | 35% | 0.00% |
|
Centene Corp. CNC, |
Managed Health Care | 85% | $63.98 | $85.47 | 34% | 0.00% |
|
Vertex Pharmaceuticals Inc. VRTX, |
Biotechnology | 78% | $199.92 | $262.14 | 31% | 0.00% |
|
Cigna Corp. CI, |
Managed Health Care | 91% | $210.68 | $275.76 | 31% | 1.90% |
|
Merck & Co. Inc. MRK, |
Pharmaceuticals | 76% | $76.30 | $95.56 | 25% | 3.41% |
|
Baxter International Inc. BAX, |
Medical Specialties | 53% | $73.97 | $92.56 | 25% | 1.51% |
|
Zimmer Biomet Holdings Inc. ZBH, |
Medical Specialties | 79% | $150.07 | $187.58 | 25% | 0.64% |
|
AES Corp. AES, |
Electric Utilities | 91% | $24.19 | $29.94 | 24% | 2.49% |
|
Edison International EIX, |
Electric Utilities | 63% | $57.53 | $70.36 | 22% | 4.61% |
|
Humana Inc. HUM, |
Managed Health Care | 61% | $405.76 | $494.00 | 22% | 0.69% |
|
Teleflex Inc. TFX, |
Medical Specialties | 75% | $388.22 | $464.80 | 20% | 0.35% |
|
McKesson Corp. MCK, |
Medical Distributors | 81% | $201.12 | $240.38 | 20% | 0.93% |
|
Anthem Inc. ANTM, |
Managed Health Care | 74% | $372.67 | $438.90 | 18% | 1.21% |
|
AmerisourceBergen Corp. ABC, |
Medical Distributors | 69% | $119.89 | $140.85 | 17% | 1.47% |
|
Steris PLC STE, |
Medical Specialties | 83% | $213.61 | $249.60 | 17% | 0.81% |
|
Dentsply Sirona Inc. XRAY, |
Medical Specialties | 60% | $62.09 | $72.54 | 17% | 0.71% |
|
Bristol-Myers Squibb Co. BMY, |
Pharmaceuticals | 65% | $66.60 | $77.13 | 16% | 2.94% |
|
CVS Health Corp. CVS, |
Drugstore Chains | 77% | $83.71 | $96.47 | 15% | 2.39% |
|
Sempra Energy SRE, |
Electric Utilities | 63% | $131.86 | $151.07 | 15% | 3.34% |
|
Boston Scientific Corp. BSX, |
Medical Specialties | 84% | $44.80 | $51.20 | 14% | 0.00% |
| Source: FactSet | ||||||
Click on the tickers for more about each company.
As always, a list based on analysts at brokerage firms is only a starting point. If you see any stocks of interest, you need to do your own research to form your own opinion about a company’s long-term prospects.
Here’s some additional information. Consensus revenue estimates through 2024 are available for 18 of the 20 companies, while they are available through 2025 for 13 of them. Here they are with the companies in the same order, with three-year and four-year expected compound annual growth rates (CAGR) to the right, where applicable. Figures are in millions of dollars.
| Company | Estimated revenue – 2021 | Estimated revenue – 2022 | Estimated revenue – 2023 | Estimated revenue – 2024 | Estimated revenue – 2025 | Expected revenue CAGR – three years | Expected revenue CAGR – four years |
|
Incyte Corp. INCY, |
$2,841 | $3,442 | $3,989 | $4,678 | $5,432 | 18.1% | 17.6% |
|
Centene Corp. CNC, |
$123,825 | $128,431 | $134,238 | $139,438 | N/A | 4.0% | N/A |
|
Vertex Pharmaceuticals Inc. VRTX, |
$7,287 | $8,025 | $8,553 | $9,267 | $9,922 | 8.3% | 8.0% |
|
Cigna Corp. CI, |
$169,301 | $179,342 | $190,397 | N/A | N/A | N/A | N/A |
|
Merck & Co. Inc. MRK, |
$46,888 | $51,066 | $52,998 | $55,392 | $57,936 | 5.7% | 5.4% |
|
Baxter International Inc. BAX, |
$12,618 | $13,243 | $13,920 | $14,623 | $15,378 | 5.0% | 5.1% |
|
Zimmer Biomet Holdings Inc. ZBH, |
$8,111 | $8,519 | $8,856 | $9,364 | $9,688 | 4.9% | 4.5% |
|
AES Corp. AES, |
$9,807 | $10,294 | $10,305 | N/A | N/A | N/A | N/A |
|
Edison International EIX, |
$14,419 | $14,888 | $15,462 | $15,848 | $16,371 | 3.2% | 3.2% |
|
Humana Inc. HUM, |
$82,792 | $91,697 | $100,029 | $114,107 | N/A | 11.3% | N/A |
|
Teleflex Inc. TFX, |
$2,821 | $2,999 | $3,216 | $3,317 | $3,575 | 5.6% | 6.1% |
|
McKesson Corp. MCK, |
$248,994 | $257,348 | $269,939 | $288,567 | $303,454 | 5.0% | 5.1% |
|
Anthem Inc. ANTM, |
$137,121 | $150,049 | $160,282 | $183,364 | N/A | 10.2% | N/A |
|
AmerisourceBergen Corp. ABC, |
$217,891 | $239,232 | $253,445 | $272,019 | N/A | 7.7% | N/A |
|
Steris PLC STE, |
$4,221 | $4,940 | $5,286 | $5,630 | N/A | 10.1% | N/A |
|
Dentsply Sirona Inc. XRAY, |
$4,287 | $4,508 | $4,710 | $5,066 | $5,335 | 5.7% | 5.6% |
|
Bristol-Myers Squibb Co. BMY, |
$46,449 | $48,556 | $50,243 | $51,282 | $51,184 | 3.4% | 2.5% |
|
CVS Health Corp. CVS, |
$283,269 | $295,651 | $309,494 | $322,225 | $337,416 | 4.4% | 4.5% |
|
Sempra Energy SRE, |
$12,117 | $12,558 | $12,912 | $13,220 | $13,352 | 2.9% | 2.5% |
|
Boston Scientific Corp. BSX, |
$12,029 | $12,978 | $13,977 | $14,932 | $15,902 | 7.5% | 7.2% |
| Source: FactSet | |||||||
The sales estimates are for calendar years — some companies’ fiscal years don’t match the calendar.
Moving on to earnings estimates, consensus earnings-per-share estimates are available through 2024 for all 20 companies and available through 2025 for 14 of them.
Here they are, with expected CAGR:
| Company | Estimated EPS – 2021 | Estimated EPS – 2022 | Estimated EPS – 2023 | Estimated EPS – 2024 | Estimated EPS – 2025 | Expected EPS CAGR – three years | Expected EPS CAGR – four years |
|
Incyte Corp. INCY, |
$2.10 | $3.64 | $4.80 | $6.38 | $8.53 | 44.9% | 42.0% |
|
Centene Corp. CNC, |
$5.19 | $5.69 | $6.55 | $8.19 | N/A | 16.4% | N/A |
|
Vertex Pharmaceuticals Inc. VRTX, |
$12.27 | $13.11 | $13.93 | $15.03 | $16.09 | 7.0% | 7.0% |
|
Cigna Corp. CI, |
$20.30 | $22.58 | $25.58 | $26.56 | N/A | 9.4% | N/A |
|
Merck & Co. Inc. MRK, |
$5.57 | $6.51 | $6.99 | $7.90 | $8.53 | 12.3% | 11.2% |
|
Baxter International Inc. BAX, |
$3.53 | $3.99 | $4.48 | $4.78 | $5.09 | 10.7% | 9.6% |
|
Zimmer Biomet Holdings Inc. ZBH, |
$7.79 | $8.71 | $9.53 | $10.35 | $10.84 | 9.9% | 8.6% |
|
AES Corp. AES, |
$1.54 | $1.67 | $1.80 | $1.90 | $2.08 | 7.1% | 7.8% |
|
Edison International EIX, |
$4.52 | $4.64 | $4.91 | $5.13 | $5.50 | 4.3% | 5.0% |
|
Humana Inc. HUM, |
$21.57 | $24.58 | $27.86 | $32.66 | N/A | 14.8% | N/A |
|
Teleflex Inc. TFX, |
$12.98 | $14.62 | $16.50 | $19.13 | $21.35 | 13.8% | 13.3% |
|
McKesson Corp. MCK, |
$19.48 | $21.03 | $23.05 | $24.75 | $26.66 | 8.3% | 8.2% |
|
Anthem Inc. ANTM, |
$25.62 | $28.56 | $32.32 | $38.54 | N/A | 14.6% | N/A |
|
AmerisourceBergen Corp. ABC, |
$9.55 | $10.77 | $11.59 | $12.43 | N/A | 9.2% | N/A |
|
Steris PLC STE, |
$7.34 | $8.44 | $9.32 | $10.89 | N/A | 14.0% | N/A |
|
Dentsply Sirona Inc. XRAY, |
$2.89 | $3.22 | $3.61 | $4.37 | $5.34 | 14.8% | 16.6% |
|
Bristol-Myers Squibb Co. BMY, |
$7.49 | $8.12 | $8.56 | $8.74 | $8.67 | 5.3% | 3.7% |
|
CVS Health Corp. CVS, |
$7.77 | $8.24 | $8.93 | $9.40 | $10.19 | 6.5% | 7.0% |
|
Sempra Energy SRE, |
$8.13 | $8.47 | $8.93 | $9.34 | $9.76 | 4.7% | 4.7% |
|
Boston Scientific Corp. BSX, |
$1.61 | $1.87 | $2.11 | $2.35 | $2.61 | 13.5% | 12.8% |
| Source: FactSet | |||||||
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