Medtech Looks Expensive But Remains a Trade War Safe Haven

(Bloomberg) -- Makers of medical devices and diagnostics that have been more immune to the latest twists and turns of the ongoing U.S.-China trade war are more expensive than peers, but that may be for a good reason.

A steady outlook for devices, paired with the group’s role as a “safe haven in choppy global markets,” should keep investors interested despite near-record multiples, according to a research note published by Jefferies analysts led by Raj Denhoy.

The iShares U.S. Medical Devices ETF, a closely watched exchange-traded-fund, has continued to trade at some of its highest forward price-to-earnings multiples this year. They have dwarfed those seen by other sectors, as investors seek protection from Trump tweets and concerns that the 2020 election may pressure health-care companies.

The ETF added almost $25 million last week, the biggest inflow since the week ending July 12, data compiled by Bloomberg show.

While further expansion for the companies is less certain given the heightened valuations, sector laggards like Zimmer Biomet Holdings Inc. and Medtronic Plc could have room to run, the analysts continued. Both stocks are trading at lower multiples than the group despite outperforming the broader market this year.

Medtech Stocks Need More Than Good Earnings to Keep Up Rally

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Tatiana Darie

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