Wall Street has come down crashing on President Donald Trump’s sweeping tariffs, raising the risk of a trade war that could push the global economy into recession. Major equity indexes have recorded their worst days in years, with the S&P 500 slipping back into correction territory. Amid the bloodbath, the focus is slowly turning to defensive sectors poised to shrug off the long-term effects of the trade war.
The steep sell-off in the equity markets comes on the heels of Greenlight Capital’s David Einhorn reiterating early in the year that the long-running bull run had ascended to levels beyond common sense.
“We have reached the ‘Fartcoin’ stage of the market cycle,” Einhorn wrote in an investor letter obtained by CNBC. “Other than trading and speculation, it serves no other obvious purpose and fulfills no need that is not served elsewhere.”
The sentiments came on the artificial intelligence-driven rally, propelling major indices to record highs. The gains to record highs also came with expectations that the Federal Reserve would aggressively cut interest rates on inflation levels that dropped close to the recommended 2% range. Things have changed, and the risk of inflation spiking has increased amid an aggressive trade war between the US and its trading partners.
READ ALSO: Top 10 Growth Stocks in David Tepper’s Portfolio and Billionaire Ken Fisher’s Top 13 Growth Stock Picks.
Greenlight Capital, a hedge fund founded by David Einhorn, has also found itself at a crossroads amid the deep sell-off in the market. Nevertheless, the hedge fund, which specializes in value-oriented strategies, boasts of significant exposure to healthcare stocks, offering some support as investors shun risky plays amid the corrective phase in the equity markets.
Healthcare stocks tend to hold up well in recessions as demand for healthcare services remains strong regardless of the prevailing economic situation. Consequently, the healthcare sector has been down by about 4% for the year, compared to a 14% decline in the S&P 500. The outperformance comes on the heels of Goldman Sachs chief US equity strategist David Kostin reiterating healthcare stocks are the way to go as the overall equity market remains in a corrective phase.
Given that healthcare accounts for about 17% of the US economy, companies with exposure to the multibillion sectors stand a fair chance of shrugging off the pitfalls of the ongoing trade wars. That’s because the industry boasts a defensive tilt that should attract investor interest amid rotation from high-risk plays in the equity markets.
“Within the equity market, we continue to recommend that investors own the health care sector, which offers investors a defensive tilt at low valuations,” Kostin added. “Health Care has outperformed the S&P 500 by 7 pp. YTD, but the median stock still trades at an 18% P/E discount to the S&P 500, which is nearly the largest valuation discount in recent decades,” Kostin said.
Increased focus on healthcare stocks amid recession and trade war concerns comes against the backdrop of one of the most frustrating years for healthcare fund managers. Even though the fundamental aspects of the healthcare sector indicated it would surpass the overall market, it still lagged behind sectors more sensitive to economic shifts as the US economy proved to be stronger than anticipated in 2024. Additionally, the sector faced negative effects due to the US election results.
Historically, healthcare has significantly outperformed over the long haul. From 1989 to October 2024, the S&P 500 Healthcare Index yielded annualized returns of 12%, comparable to the technology sector. However, performance has been cyclical, with clear phases of underperformance and outperformance, driven by overarching market trends – like instances when all defensive sectors excel – and industry-specific catalysts.
Our Methodology
We combed Greenlight Capital SEC Q4 2024 13F filings to identify the top 9 healthcare stocks in David Einhorn’s portfolio. We then analyzed why the stocks stand out, as solid investment plays, well poised to shrug off the uncertainty triggered by recession concerns and trade war. Finally, we ranked the stocks in ascending order based on the value of Greenlight Capital equity stakes in the stocks. Additionally, we have mentioned the hedge fund sentiment around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Top 9 Healthcare Stocks to Buy According to Billionaire David Einhorn
9. Nuvation Bio Inc. (NYSE:NUVB)
Greenlight Capital’s Equity Stakes: $93,087
Number of Hedge Fund Holders: 34
Nuvation Bio Inc. (NYSE:NUVB) is one of the smallest holdings in David Einhorn’s portfolio, offering exposure to the development of therapies for unmet medical needs. The clinical-stage biopharmaceutical company specializes in oncology therapies. Its lead product is Taletrectinib, designed to treat non-small cell lung cancer.
Taletrectinib is currently under review by the Food Drugs Administration as an advanced treatment for non-small cell lung cancer. Submission for approval is supported by positive clinical data from Phase 2 Trust -1 and Trust-II studies. Its efficacy stood at 88.8%, further heightening its prospects for approval. Taletrectinib’s clinical profile is further supported by the Chinese approval and the Japanese regulatory application.
Nuvation Bio Inc. (NYSE:NUVB) has also secured non-dilutive financing to support Taletrectinib in the US. The $250 million financing from Sagard Healthcare leaves the company in a solid financial position. In addition to Taletrectinib, Nuvation’s pipeline consists of NUV-1511 and safusidenib for IDH1-mutant glioma, affirming why it is a top healthcare stock in David Einhorn’s portfolio. These candidates, however, are still in the early stages of development and focus on regions with a large number of unmet needs.
8. Gain Therapeutics Inc (NASDAQ:GANX)
Greenlight Capital’s Equity Stakes: $1.22 Million
Number of Hedge Fund Holders: 6
Gain Therapeutics Inc (NASDAQ:GANX) is a biotechnology company that develops small-molecule therapeutics to treat diseases across various therapeutic areas. Its focus on creating a therapeutic pipeline that can treat a range of illnesses with unmet medical requirements affirms why it is one of David Einhorn’s top investment plays in the healthcare sector.
Its lead drug candidate, GT-02287, is currently in Phase 1 clinical trials for the treatment of GBA1 Parkinson’s disease. In light of promising findings from earlier research that showed GT-02287’s safety and effectiveness, the company is getting ready to treat individuals with idiopathic Parkinson’s disease or GBA1 at many clinical facilities in Australia. Gain Therapeutics Inc (NASDAQ:GANX) is hopeful about the FDA’s input on regulatory paths and expects to receive updates on patient enrollment and interim results by the middle of 2025.
Conversely, Gain Therapeutics Inc. (NASDAQ:GANX) reported a reduced net loss of $20.4 million for the year ending December 31, 2024, compared to $22.3 million in 2023. Additionally, research and development expenses declined from $11.5 million in 2023 to $10.8 million in 2024. The company is financially stable as it advances clinical trials and looks into future financing possibilities because it has enough resources to continue operations through significant milestones in 2025.
