Managed-care stocks offer value in an uncertain economy

Fidelity Portfolio Manager Sean Gavin is finding compelling investment opportunities in the health care sector, especially in the managed-care industry, where stocks widely lagged the broader U.S. equity market in 2023.

“The weak return for managed care reflects the market’s concern about a drop in Medicare reimbursement and an increase in the utilization of outpatient care,” explains Gavin, who manages Fidelity® Blue Chip Value Fund (FBCVX). “But I think this sell-off may be misguided, and that investors are overreacting to what I consider a short-term challenge for this segment.”

As manager of the large cap, value-oriented strategy since 2014, Gavin invests in companies when he sees significant price dislocation, believing that a stock’s market value will move toward its intrinsic (fair) value over time.

In his view, many investors insufficiently recognize that managed-care companies operate on annual contracts, which gives them flexibility to regularly adjust pricing and pass through their additional costs or adjust their benefits, as the market allows, to boost profitability over the long term.

Gavin appreciates the historically steady nature of the managed-care business, as demand for health care services is inherently more predictable and less vulnerable to economic cycles than other sectors. He sees this as a particularly valuable attribute in a weakening economy.

“In this challenging economic environment, where we don’t know whether the Federal Reserve will achieve a “soft landing” after its aggressive rate-increase campaign, I see managed-care stocks as defensive investments with the potential to generate an attractive return over time,” says Gavin.

Also appealing to Gavin is that lowered stock valuations give managed-care providers the opportunity to buy back their own stock at an attractive price, offering a path for these companies to boost their intrinsic value.

As of November 30, the fund had meaningful stakes in a handful of managed-care providers—Cigna (CI), Centene (CNC), Elevance Health (ELV), UnitedHealth Group (UNH), and Humana (HUM)—totaling roughly 16% of its net assets.

“I’m happy to hold these stocks in the fund through their current period of difficulty, particularly given their depressed valuations, and wait patiently for what I believe could be favorable long-term results,” says Gavin.

For specific fund information, including full holdings, please click on the fund trading symbol above.

Sean Gavin
Sean Gavin
Portfolio Manager

Sean Gavin is a portfolio manager in the Equity division at Fidelity Investments.

In this role, Mr. Gavin manages Fidelity Value Discovery Fund, Fidelity Blue Chip Value Fund, Fidelity Blue Chip Value ETF, Fidelity Advisor Equity Value Fund, Fidelity Advisor Value Leaders Fund, Fidelity Series Value Discovery Fund, and FIAM Target Date Value Discovery Commingled Pool.

Prior to assuming his current position in January 2012, Mr. Gavin was a research analyst in the Equity division. During this time, he worked as a diversified analyst on the Value team, as a food and beverage analyst, and as a transportation analyst.

Before joining Fidelity in 2007, Mr. Gavin was an assistant portfolio manager at Pioneer Investments and a research analyst at both Boston Partners Asset Management and at Delphi Management. He has been in the financial industry since 1998.

Mr. Gavin earned his bachelor of arts degree in mathematics from Oberlin College and his bachelor of music degree in trombone performance from the Oberlin Conservatory. He is also a CFA® charterholder.

Interested in mutual funds?

Choose your criteria and get fund picks from Fidelity or independent experts.

More to explore

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Growth stocks can perform differently from the market as a whole and other types of stocks, and can be more volatile than other types of stocks.

Value stocks can perform differently from other types of stocks, and can continue to be undervalued by the market for long periods of time.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities.

The securities of smaller, less well known companies can be more volatile than those of larger companies.

Some funds may use investment strategies involving derivatives and other transactions that may have a leveraging effect on the fund. Leverage can increase market exposure and magnify investment risk. Investors should be aware that there is no assurance that a fund's use of such strategies will succeed.

Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company's creditors take precedence over its stockholders.

Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917