2023 wasn’t a good year for the healthcare sector, but some investors expect it to bounce back this year — pointing to biotech and medtech as sectors to watch. “Emerging from a poor fundraising environment in ’22-23, where early-stage biotech companies struggled to fund their R&D efforts amid rising interest rates, the struggling sector is finally seeing a resurgence of M&A deals into the new year begins,” Citi Global Wealth Investments said in a Jan. 14 note. There have already been about $9.6 million worth of transactions so far in January, the bank noted. As a sector, healthcare underperformed the broader market last year, with the iShares US Healthcare ETF gaining only about 2% through 2023. But now, Citi believes that “astute investors may find themselves with a plenty of recovery opportunities.” He urged investors to consider the “inherent resilience” of health care over the long term, noting that the industry has posted positive earnings growth in the three recent global earnings downturns. “As the macroeconomic tides shift, we see healthcare as an unstoppable beneficiary of the trend, with growth prospects well beyond obesity drug makers,” Citi said. GLP-1 (glucagon-like peptide-1) drugs, originally developed as a treatment for diabetes but now widely used for weight loss, shook up the industry last year. The healthcare industry “appears poised to return to leadership” given demographic changes and the benefits of artificial intelligence, the bank said. “We expect the recovery in healthcare earnings in 2024 to be one of the main drivers of potential outperformance in the sector,” he added. Investment picks and advice Citi said it was “particularly interested” in declining valuations in the medtech and tools sectors, while biotech “looks like a high-risk, high-reward bet” as rate cuts are expected to begin. Growth stocks, such as technology and biotech stocks, typically benefit from interest rate cuts. Citi’s top biotech picks include Biomea Fusion, Alnylam Pharmaceuticals and Immunovat. Jared Holz, healthcare strategist at Mizuho Securities Americas, named biotech company Biogen as one of his top trading ideas for 2024. He said 2024 looks set to be a better year for Biogen as it appears to be poised for “full year” of sales in Alzheimer’s treatment Leqembi. He noted that Biogen is coming up with an injectable version that “should dramatically improve uptake over the long term.” Holz added that Biogen remains in a “strong position” for the acquisition other assets, and is small enough that it may even be a takeover target itself at some point. In medtech, Citi described some medical device makers as “necessary ‘picks and shovels’ for drug development.” Some are partnering with biopharmaceuticals partners in areas such as drug formulation and packaging, while others produce wearable or implantable devices for conditions such as heart disease or diabetes. Citi highlighted another investment opportunity: makers of equipment used in robotic-assisted surgery. And Trent Masters, global portfolio manager at Alphinity, on Tuesday singled out surgical robotics maker Intuitive Surgical as one of his “top conviction calls.” “Most of medtech was hit hard by the GLP1 craze last October, where it seemed the expectation was that GLP1 drugs would make everyone healthier and remove the need for procedures,” he said. “But what we’re seeing now across medtech is a more subtle nuance about longevity being positive for procedures that offset the potential loss from a healthier population,” Masters added. As for those who prefer to invest in an exchange-traded fund rather than individual stocks, Matt Orton, chief market strategist at Raymond James Investment Management, says he favors the health care sector right now and likes the iShares US Medical Devices ETF . “Biotech has gotten everyone’s attention, but the recovery of many best-in-class medical device companies after the sale of GLP-1 has been remarkable,” Orton said. “I think there’s still room to run for names like DexCom, Intuitive Surgical, Abbott Laboratories, and this ETF is the best way to get exposure,” he added.