Investing.com -- Bank of America analysts see the potential for medtech stocks to continue gaining momentum as they appear less vulnerable to potential healthcare-related controversies tied to RFK Jr. headlines.
The bank notes that recent developments have bolstered the sector, with medtech rebounding from historically low valuations to trade more closely in line with its 10-year average discount to the Tools sector.
In just two days, medtech's discount to Tools narrowed from 20% to 12%, reflecting renewed investor interest.
However, BofA says medtech is "not yet above" its long-term average discount relative to Tools and is still trading at a 10% discount to the S&P 500.
They explain that historically, medtech enjoyed a 9% premium to the S&P 500 as recently as 2023, suggesting potential for further gains. The analysts observe that "depressed medtech valuations" and its recent underperformance leave room for "multiple expansion for the entire group."
While value-driven product stories could see short-term benefits, BofA warns that external factors, such as tariffs and foreign exchange (FX) impacts, could reemerge as headwinds in the next six months.
These risks may sustain a wider premium for quality growth names within the medtech sector, according to BofA. Despite the challenges, the bank says growth prospects remain robust due to the introduction of new products.
"Quality growth PEs may be at absolute highs vs history, but growth outlooks are higher," BofA notes.
The analysts also highlight that medtech's relative position in the market has been bolstered by a "post-election quality growth rally" and reduced exposure to the healthcare risks that might be associated with RFK Jr.'s potential influence.
While uncertainties linger, BofA maintains a cautiously optimistic outlook on the sector, emphasizing its rebound potential and resilience against broader market pressures.