Best and Worst ETFs In The Health Care Sector [SPDR S&P Biotech (ETF), iShares Dow Jones US Medical Dev.(ETF)]

Healthways Inc. (HWAY) is one of my least favorite stocks held by Healthcare ETFs and mutual funds and earns my Very Dangerous rating. Over the past four years, HWAY’s NOPAT has decreased by 25% compounded annually, and the company generated a bottom quintile ROIC of 3% last year. To make matters worse, HWAY has had negative and declining economic earnings for the last five years. Despite the poor performance of HWAY, its stock price is up ~60% over the past year. To justify its current valuation of ~$17, HWAY would need to grow NOPAT by 25% compounded annually for the next 12 years. The growth expectations embedded in this stock price out any potential upside while setting up a significant fall if HWAY fails to grow profits as rapidly as the market expects.

316 stocks of the 3000+ I cover are classified as Health Care stocks, but due to style drift, Health Care ETFs and mutual funds hold 314 stocks.

Figures 4 and 5 show the rating landscape of all Health Care ETFs and mutual funds.

My Sector Rankings for ETFs and Mutual Funds report ranks all sectors and highlights those that offer the best investments.

Figure 4: Separating the Best ETFs From the Worst ETFs


Sources: New Constructs, LLC and company filings

Figure 5: Separating the Best Mutual Funds From the Worst Mutual Funds


Sources: New Constructs, LLC and company filings

Review my full list of ratings and rankings along with reports on all 22 ETFs and 72 mutual funds in the Health Care sector.

Jared Melnyk and Kyle Guske II contributed to this report.

Disclosure: David Trainer, Jared Melnyk, and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

This article is brought to you courtesy of David Trainer from New Constructs.

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