Against a backdrop of solid growth for the sector, the outperforming Vanguard Health Care Fund (Trades, Portfolio) replenished its portfolio in the first quarter with increases in 27 holdings and reductions or removal of 28 holdings.
Health care’s robust performance continued in the first quarter, when health care companies exceeded their revenue estimates at the highest rate of all S&P 500 sectors. Seventy-three percent reported higher earnings than expected, compared with 55% of all of the companies in index. Moreover, companies in the health care sector reported the second-highest revenue growth of the 10 S&P 500 sectors at 8.9%. The sales growth spanned all six industries in the sector, with the highest in technology, biotechnology and health care providers and services, according to FactSet.
For the past three years, health care has also dominated market returns. Multi-year price gains may have pushed the stocks to relatively expensive heights, with an average trailing price-book ratio of 26.6 and price-book ratio of 3.89.
Significant market shifts in 2016 may give health care watchers a lower-priced entry point, however, with health care plunging 5.6% as the second worth performing sector of the index in the first three months of the year. The projected price-earnings ratio measured 14.7.
The Vanguard Health Care Fund (Trades, Portfolio) has trounced its benchmark Spliced Health Care Index over its history. It declined 3.3% compared to 5.3 for the index for the year ended April 30, returned 17.1% compared to 13.5% for the past five years and 16.8% compared to 11.1% since its 1984 inception.
Jean M. Hynes, CFA, senior managing director and global industry analyst, took over management of the fund in 2008. In stock selection, she looks for with strong balance sheets, exceptional management and new products in development that will drive earnings and revenue growth. As a contrarian, Hynes also favors buying when bad news about an attractive company causes a dip in its stock price.
Last quarter, Hynes increased her funds positioning the most in these five stocks: Acadia Healthcare Co. Inc. (ACHC, Financial), Incyte Corp. (INCY, Financial), Chuhai Pharmaceutical Co. Inc. (TSE:4519, Financial), Thermo Fisher Scientific Inc. (TMO, Financial) and Regeneron Pharmaceuticals Inc. (REGN, Financial).
Acadia Healthcare Co. Inc. (ACHC, Financial)
Hynes increased the portfolio holding by 115%, giving her 1,806,200 shares of the company in total. The holding accounts for 2% of the portfolio.
Acadia Healthcare Co. Inc. has a market cap of $5.36 billion; its shares were traded around $61.35 with a P/E ratio of 35.88 and P/S ratio of 2.18.
Incyte Corp. (INCY, Financial)
Hynes increased the position by 68.7% , giving her 16,277,748 shares in total, worth 2.6% of the portfolio.
Incyte Corp. has a market cap of $13.5 billion; its shares were traded around $72.09 with and P/S ratio of 17.38.
Chuhai Pharmaceutical Co. Inc. (TSE:4519, Financial)
Hynes increased the position by 54.7%, giving her 13,139,400 shares in total, worth 0.9% of the portfolio.
Chugai Pharmaceutical Co. Ltd. has a market cap of $1984.87 billion; its shares were traded around $3635.00 with a P/E ratio of 32.6 and P/S ratio of 3.96. The trailing 12-month dividend yield of Chugai Pharmaceutical Co. Ltd. stocks is 1.58%. The forward dividend yield of Chugai Pharmaceutical Co. Ltd. stocks is 1.58%. Chugai Pharmaceutical Co. Ltd. had an annual average earnings growth of 0.9% over the past 10 years.
Thermo Fisher Scientific Inc. (TMO, Financial)
Hynes increased the position by 40.1%, giving her 4,315,800 shares in total, worth 1.35% of the portfolio.
Thermo Fisher Scientific Inc. has a market cap of $57.41 billion; its shares were traded around $144.87 with a P/E ratio of 29.19 and P/S ratio of 3.4. The trailing 12-month dividend yield of Thermo Fisher Scientific Inc. stocks is 0.41%. The forward dividend yield of Thermo Fisher Scientific Inc stocks is 0.41%. Thermo Fisher Scientific Inc. had an annual average earnings growth of 14.8% over the past 10 years. GuruFocus rated Thermo Fisher Scientific Inc. the business predictability rank of 5-star.
Regeneron Pharmaceuticals Inc. (REGN, Financial)
Hynes increased the position by 39%, giving her 3,169,490 shares in total, worth 2.5% of the portfolio.
Regeneron Pharmaceuticals Inc. has a market cap of $38.91 billion; its shares were traded around $371.32 with a P/E ratio of 67.42 and P/S ratio of 10.43.
See more of the stocks in the Vanguard Healthcare Fund in the portfolio here. Start a free 7-day trial of Premium Membership to GuruFocus
