Neither small-caps nor health-care stocks have been particularly hot this year, but oddly enough, small-cap health-care stocks are making a run.
The S&P Small Cap 600 health-care sector is up 5.6% so far this year, outperforming the broader small-cap index’s 0.8% decline and the 2.1% increase of the large-cap health-care sector. The broader S&P 500 (.SPX), meanwhile, is up 3.9%.
Large health-care stocks have been under pressure as investors worried about the 2020 presidential campaign and the prospects of Democratic candidates who have called for moving Americans onto government-run health insurance.
Small-cap health-care stocks haven’t faced the same struggles.
They may continue to hold an edge for a couple reasons, Nicholas Colas, co-founder of DataTrek Research, wrote in a report.
“Small-cap health care has been the place to be so far in 2020 and will likely remain so,” Mr. Colas wrote. “First, they are less likely to be in the crosshairs of any Presidential political debate. Second, they are more likely to be ‘Growth’ stocks rather than ‘Value.’ ”
Shares of fast-growing companies have beaten out value stocks—often defined as companies whose shares trade at a low multiple of their book value—through much of the decadelong bull rally. That has held true so far in 2020, with the S&P 500 and S&P Small Cap 600 growth indexes (.SML) outrunning their value counterparts.
Smaller companies tend to have more potential for growth than their larger peers, Mr. Colas noted in an email. In areas like biotech, investors look to smaller companies for innovation that can propel growth.
Smaller health-care companies that have had a strong start to 2020 include Merit Medical Systems Inc., (MMSI) which has advanced 29% year-to-date. Shares jumped after news on Jan. 13 that Starboard Value LP had acquired a stake, saying the medical-device company’s shares were undervalued.
Shares of Momenta Pharmaceuticals Inc. (MNTA) have rallied 61% this year, with the bulk of the gains after the company outlined guidance for 2020 and gave updates on research under way.
Emergent BioSolutions Inc. (EBS) has risen 16% so far this year. Shares climbed after the life-sciences company said the European Medicines Agency’s Committee for Medicinal Products for Human Use had recommended approval of its single-dose oral cholera vaccine.
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