Search for safety takes health care to top of S&P

NEW YORK Feb 24 (Reuters) - With the economic crisis hurtling full speed ahead, investors have plowed cash into health-care stocks, making it the largest group on the S&P 500 for the first time in at least 20 years as the search for safe havens abounds.

Health-care companies are an alluring bet as cash-strapped consumers will cut back on expensive leisure activities before they hold off on aspirin, band-aids, prescription drugs and hospital visits.

Adding to the sector's shine, a deep broad market sell-off has left shares at relatively cheap prices, while health care is one of the few sectors to show earnings growth for the last quarter.

"Preservation of capital is the theme for 2009," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco, a move that "leads in the direction of defensives -- things that people cannot live without, health care being one of them."

The health-care group edged past technology on Monday to become the biggest of the 10 S&P 500 sectors, accounting for 16.98 percent of the total index, based on market capitalization.

With the traditional market leaders -- financials, energy and technology -- tumbling, health care sector gained the top spot by faring better than its peers.

Techs have also been viewed defensively as investors have snapped up companies with large cash reserves that enable them to more easily survive the economic slowdown.

Beyond the defensive appeal, the health-care group is one of just three sectors that are on track to finish the fourth-quarter results season with earnings growth. The other two sectors with higher earnings are consumer staples and utilities.

Health care is by far the leader, according to Thomson Reuters data, which shows an 11 percent blended growth rate, based on numbers both for companies that have reported and estimates for companies yet to report.

"That's pretty good earnings growth in any environment, and in this environment, that's spectacular earnings growth," said Steve Sachs, director of trading at Rydex Investments in Rockville, Maryland.

Among bright spots in the earnings season, pharmacy benefits manager Medco Health Solutions Inc (MHS.N) reported a 32 percent jump in profit on Tuesday as generic drug sales and home delivery prescriptions increased.

Medco also stood by its 2009 profit outlook in a quarter that has been characterized by companies cutting forecasts or failing to give any due to the economic uncertainty. For more details, see [ID:nN23344781].

Interest in the health space has also been piqued by Pfizer's (PFE.N) offer to buy rival Wyeth WYE.N for $68 billion, a rare blockbuster deal at a time when credit markets remain tight.

But health-care shares cannot all be painted with the same safe-haven brush, analysts cautioned. Companies with more reliance on discretionary spending, such as Botox maker Allergan Inc (AGN.N), run more risk of being hurt as consumers tighten their belts.

"There are some real value traps in the sector," said Harry Rady, chief executive officer and portfolio manager for Rady Asset Management in San Diego, who owns shares of Schering-Plough Corp SGP.N.

"More than ever, you have to be sensitive to what truly is discretionary and nondiscretionary," said Rady. (Editing by Leslie Adler)