Doll: 'Trendless' market a pill, but health care stocks stand out

Despite extreme swings in the market in the second quarter, there are many good buying opportunities in the equity markets — particularly in the health care sector, according to a paper published yesterday by Robert Doll, chief equity strategist at BlackRock Inc., and Peter Fisher, global head of fixed income. The Dow Jones Industrial Average ended the quarter up 0.8%, while the S&P 500 was down 0.4%. At the end of the first quarter, Mr. Doll and Mr. Fisher were whistling a different tune, talking about opportunities in the fixed-income market while sharing concerns about equity markets. But the past few months have shown that there are good investments out there — particularly in growth stocks, Mr. Doll said in an interview. He likes the health care sector because it isn't dependent on an economic recovery to do well. “People get sick whether there is a recovery or not,” Mr. Doll said. He said he believes health care stocks still are undervalued, due to the recent regulatory overhaul. At the same time, he sees the sector demonstrating increasing cash flow. “We like the health care services part of the sector best, although we are also less negative on [pharmaceutical companies] than we have been,” due to rising free cash flow from many companies in the space, Mr. Doll said. Companies that Mr. Doll likes are UnitedHealth Group Inc. Ticker:(UNH); Aetna Inc. Ticker:(AET) and Wellpoint Inc. Ticker:(WLP). On the product side, he likes Pfizer Inc. Ticker:(PFE), Amgen Inc. Ticker:(AMGN) and Forest Laboratories Inc. Ticker:(FRX). Mr. Doll remains bearish on the financial sector, largely due to the uncertainty around the how regulatory reform will affect banks. “Revenue for the banks in particular was all about leverage,” he said. “Leverage has now become a four-letter word.” Similarly, Mr. Doll is bearish on utilities. “Many have diversified unsuccessfully into areas that are more cyclical,” he said. “We think many of them will behave like bonds, and we think bonds will underperform.” Overall, Mr. Doll advised investors to prepare for further volatility in coming months. “The good old-fashioned thinking of finding a good company and putting it in your portfolio doesn't always work,” he said. “This is a trendless sort of environment.”