2024-03-27 01:00:24 ET
Summary
- XLV tracks the 64 Health Care stocks in the S&P 500 Index. Its expense ratio is 0.10% and the ETF has over $40 billion in assets under management.
- With a 12% weighting in the S&P 500 Index, Health Care is already well-represented in most portfolios. Attractive fundamentals should support a buy rating, but that's not the case today.
- Except for Eli Lilly and a handful of others, XLV lacks the growth potential to support its excessive valuation, which rivals SPY on forward earnings and trailing cash flow.
- As a result, I do not recommend overweighting Health Care and have assigned a neutral "hold" rating to XLV.
Investment Thesis
I last reviewed the Health Care Select Sector SPDR ETF ( XLV ) in June 2023 , noting that it was unattractive at the time due to its high valuation and lackluster growth potential. Indeed, XLV has lagged the S&P 500 Index by 8% since, with few Health Care stocks managing to keep pace with the Magnificent Seven ( MSFT , AAPL , NVDA , AMZN , GOOGL , META , TSLA )....
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XLV: Fundamentals Don't Support Overweighting Health Care