Health Care Stocks Are Crushing the S&P 500 (JNJ, SNY, AZN)

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For the year to date through the close June 14, health care stocks in the S&P 500 Index (SPX) are up 13%, making them the second-best performing sector after technology, the Wall Street Journal reports. The S&P 500 has risen 8.9% over the same period, per Yahoo! Finance. Additionally, as of the end of May, health care surpassed financials as the sector with the largest aggregate market cap, making it second to technology along this metric as well, the Journal notes.

Key factors driving the surge in health care stocks are new product development and rising optimism that the Trump administration will unleash innovation by deregulating the industry, the Journal says. For example, the Food and Drug Administration (FDA) has approved 21 new drugs so far this year, compared to an average of 15 through the end of June in the last six years, per the Journal. (For more, see: Top 3 Healthcare Stocks for 2017.)

Burst in Biotech

Biotechnology stocks tend to more volatile than the market as a whole, and a 2017 recovery in this segment has been a major driving factor in the resurgence of the health care sector, the Journal reports. Loxo Oncology Inc. (LOXO) is up nearly 125% for the year to date through Friday’s close. The company’s release on June 5 of promising test results regarding an anti-cancer drug, the Journal says, sent its shares soaring by 43% on that day alone.

Even bigger percentage gainers in biotech for the year to date through Friday include: Pulse Biosciences Inc. (PLSE), up 436%, Calithera Biosciences Inc. (CALA), up 343%, Kiwa Bio-Tech Products Group Corp. (KWBT), up 210%, and Pieris Pharmaceuticals Inc. (PIRS), up 205%. Pulse and Calithera specialize in developing treatments for cancers and tumors. Headquartered in Germany, Pieris focuses on high unmet medical needs in areas including cancer, severe asthma and anemia. Kiwa is developing environmentally-safe products for use in agriculture, particularly fertilizers, livestock feeds, livestock drugs and disinfectants. (For more, see: Top 3 Healthcare ETFs for 2017.)

Speculative Companies

Of the five biotech stocks mentioned above, only Kiwa has a positive net income, and its current price-earnings (P/E) ratio is 22.3, per stock quote data from the Journal. Pulse, Calithera and Loxo are small cap stocks at $447 million, $499 million and $1.9 billion, respectively, per the Journal, while Pieris has has market cap of just $182 million and Kiwa of only $29 million. Adding to the volatility of the biotech sector is the speculative nature of many companies therein, small players whose fortunes often ride on hopes of a single breakthrough discovery, and whose small share flotations facilitate big price moves, either up or down.

Big Gainers in Big Pharma

‚ÄčAmong large-cap pharmaceuticals, four led the field for the year to date through Friday. Zoetis Inc. (ZTS) is up 17.7%, Johnson & Johnson (JNJ) is up 18.2%, Paris-based Sanofi SA (SNY) is up 25.7% and London-based AstraZeneca PLC (AZN) is up 30.4%. While the other three focus on drugs and other health care products for human use, New York-based Zoetis specializes in medicines, vaccines, tests and diagnostic products for the treatment of animals, both livestock and domestic pets. All four companies beat consensus analyst estimates for first quarter EPS, by 10.4%, 3.4%, 7.1% and 25.0%, respectively, per Yahoo! Finance.

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Health Care Stocks Are Crushing the S&P 500 (JNJ, SNY, AZN)

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