U.S. healthcare stocks are currently trading at the biggest discount relative to the broader market in 30 years, according to Barrons, presenting a solid opportunity for investors looking for stability and potential growth. 

The Health Care Select Sector SPDR XLV, which mirrors the sector’s performance, has fallen 9.6% over the past year while the broad SPDR S&P 500 ETF Trust SPY climbed about 16%. This has pushed healthcare stocks to trade at a historic valuation discount compared to the broader market. 

The sector has been struggling due to concerns over political and regulatory uncertainties, including government policies targeting prescription drug prices, tariffs on pharmaceuticals, and reduced funding in health research and Medicaid. The expiry of drug patents and setbacks faced by major companies have contributed to the sector’s struggles.

In another sign of waning investor interest, healthcare ETFs have recorded 12 straight months of net outflows through July, totaling $11.5 billion. This represents the largest outflow of any sector, according to State Street Investment Management.

The healthcare sector has gathered momentum with XLV gaining 4.2% over the past week versus a decline of 0.5% for SPY. This signals potential turnaround and came on the back of attractive valuation and growing hedge fund’s exposure.

The sector is currently trading at a forward P/E ratio of around 16, substantially lower than the S&P 500’s P/E ratio of about 22 and far below technology’s P/E ratio of 30. This discount is the widest seen in three decades, making healthcare stocks some of the most undervalued in the market relative to their earnings potential.

Warren Buffett’s Berkshire Hathaway investment in UnitedHealth UNH lifted sentiment, bolstering confidence in managed-care names. In the latest 13F filing, Berkshire Hathaway disclosed that it bought more than 5 million shares in UNH in the second quarter, valued at approximately $1.6 billion. The stock has soared more than 10% in a week (read: Insights Into 13F Filings: ETFs to Invest in Like Billionaires).

Per the latest 13F filings, most hedge funds ramped up exposure to healthcare stocks. Stanley Druckenmiller, renowned investor and head of Duquesne Family Office, has increased his exposure to healthcare stocks as part of a strategic portfolio adjustment during the second quarter. His portfolio, valued at around $3.06 billion, shows a prominent tilt toward innovative healthcare and pharmaceuticals, reflecting his confidence in the sector’s growth potential.

Fund managers also highlighted exposure to Regeneron REGN and other life sciences names via both equity and calls, showing targeted science-driven bets.

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