In the world of healthcare investing, two sectors stand out as particularly attractive: Healthcare Equipment and Pharma. However, a closer look reveals that these two sectors have vastly different prospects, with Healthcare Equipment emerging as the clear winner. According to UBS Equity Strategy’s Andrew Garthwaite, Healthcare Equipment is the way to go, while Pharma faces significant headwinds due to political attacks on drug pricing.

Garthwaite argues that Healthcare Equipment has been unfairly de-rated, with its market multiple now at a level that sees it outperform on all occasions over the next one and three months. The sector has historically exhibited high growth potential, with earnings currently around 10% below trend. Furthermore, two stocks within the sector, Biomerieux and Boston Scientific in the US, are cheap on UBS HOLT metrics with positive EM.

On the other hand, Pharma faces significant challenges due to political attacks on drug pricing. As Garthwaite notes, Euro-pharma is trading down to an 18% discount vs 13% currently, indicating that investors are losing faith in the sector’s ability to deliver earnings growth. This discount is unlikely to be justified, given the sector’s historical performance and the improving earnings revisions.

While cyclicals tend to underperform when credit spreads rise, Garthwaite argues that Healthcare Equipment scores at the top of his scorecard due to its high quality and growth potential. In contrast, Pharma is facing significant headwinds, with earnings now around 10% below trend.

While both sectors have their merits, Healthcare Equipment emerges as the clear winner in terms of growth potential and investor sentiment. With its de-rated market multiple and cheap stocks on UBS HOLT metrics, Healthcare Equipment offers significant upside for investors looking to capitalize on the sector’s growth potential.