Goldman: Biden Wins, No Sanders Lock Mean Great News for Health Stocks

Health care stocks are looking at a turnaround because Bernie Sanders doesn’t appear to be a shoo-in for the Democratic nomination anymore, according to a Goldman Sachs research note. And after Super Tuesday, they got a nice bump.

The recently battered sector, as reflected by the Health Care Select Sector SPDR Fund, has the potential for a relief rally, wrote analyst Asad Haider. Previously, health stocks “were reflecting too much Sanders certainty for the Democratic nomination,” he maintained.

Until the health ETF ran into the Bernie buzz saw, it had been doing well, rising 45% since 2015. After Sanders, the leftwing Vermont senator with radical ideas about overhauling health care, cleaned up in the Nevada primary February 22, the exchange-traded fund lost 12.6%. That gloom lasted until last Saturday’s South Carolina contest delivered a solid win for former Vice President Joe Biden, the leading moderate in the party’s presidential field.

The health ETF bounced back almost 8% on Monday and lost some of that Tuesday amid the continuing market downdraft over coronavirus fears. Then came Super Tuesday night, and Biden scored a good number of triumphs at the polls. The health care ETF was ahead 3.5% in early Wednesday trading.

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Buoyed by fellow moderate contenders folding their campaigns and endorsing him, Biden racked up some important wins on Super Tuesday, capturing seven states, versus three for Sanders, who nevertheless remains a formidable force. One of Sander’s victories was in California, with its large trove of delegates. Billionaire Michael Bloomberg, also a moderate, exited the race after securing merely American Samoa.

Sanders has shaken up Wall Street and the health care industry over his plan to enact a Medicare for All program, which would abolish private medical insurers and give the federal government more say in health policy. Biden wants to see the Affordable Care Act improved and enlarged, and is disdainful of the Sanders proposal, which he terms outlandishly expensive.

According to PredictIt, the betting pool with a pretty good record for predictions, Biden now has a 70% chance of winning the Democratic nomination, with Sanders at 16%. That marks a reversal of the situation just two days before. In the primaries yet ahead, that could swing wildly, to be sure. Many still expect the decision to go all the way to the convention, with the winner determined by wheeling and dealing.

If Sanders arrives at the Milwaukee convention without the nomination secured, the Goldman report reasoned, that should please health care investors. Tellingly, it stated, “the consensus has swung toward the view that the contest is, once again, wide open.” Certainly, Wall Street is spooked by Sanders, but it also harbors a widely held belief that President Donald Trump would beat him in the November general election.

Analyst Haider stated that pharma, biotech, and drug wholesalers have a lot going for them in terms of revenue promise. The health care ETF is trading at a discount to the Standard & Poor’s 500, he pointed out. Part of that, he went on, is due to what he called “a progressive Dem discount.”