Has Healthcare Become a Utility?

Here’s a look at the P/E Ratios of the different sectors within the S&P 500:
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What really strikes me is how low the healthcare sector is relative to the other sectors. In fact, healthcare seems to be follow the utilities very closely. Does this mean that the healthcare sector is now a public utility?
For readability, I had to knock out three groups; Materials, Financials and Consumer Discretionaries. During recessions, the P/E Ratio can lose some of its importance as a valuation metric.
The Materials sector had a big loss for the fourth quarter of 2008 which eventually pushed the trailing four-quarter earnings down to just 0.42. That gave the index a P/E Ratio of over 400. Things have come back to normal somewhat and the P/E Ratio is now down to 24 on a trailing basis and 17.7 based on this year’s estimate.
This Discretionaries had a similar effect as the P/E Ratio soared to 55. Now it’s back down to 19 trailing and 17.1 based on 2010’s estimate.
As far as the financials, ugh, what can you say? The sector had losses for five straight quarters that totaled over 25, and the index got to as low as 81 a year ago. Even since then, the earnings have only been slightly positive. Based on trialing earnings, the financial sector is still going for over 33 times earnings. For 2010’s estimate, the sector is going for 16.3.
Here’s a look at the sector’s P/E Ratios based on this year’s earnings estimate, which I think gives a better picture of their value:

Materials 17.70
Industrials 17.58
Discretionary 17.11
Financials 16.28
Tech 15.94
Staples 14.93
Telecom 14.66
Energy 12.75
Healthcare 12.41
Utilities 11.82

Here’s the same chart above but this time I only have the four defensive sectors; utes, healthcare, staples and telecom.
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Posted by on March 24th, 2010 at 2:03 pm


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