The Health Care Select Sector SPDR FundNYSE American: XLV

The healthcare sector shows resilience and strong earnings growth prospects for Q3 and Q4. The entire US market is expensive, driven by peak company margins. Healthcare sector showed strong returns during US interest rate cut cycles.

Designed to provide broad exposure to the Healthcare - Broad segment of the equity market, the Health Care Select Sector SPDR ETF (XLV) is a passively managed exchange traded fund launched on 12/16/1998.

I am bullish on the Health Care Select Sector SPDR ETF (XLV) due to its attractive valuation, strong technical setup, and favorable seasonality heading into Q4. Eli Lilly (LLY) is a standout component, contributing significantly to XLV's valuation, but the ETF remains appealing even when backing out LLY's high P/E ratio. XLV offers diversified exposure across various healthcare industries, with significant holdings in large-cap stocks like UnitedHealth Group (UNH), Johnson & Johnson (JNJ), and Merck (MRK).

Chris Verrone, Strategas head of technical and macro research, joins 'Fast Money' to give his health care playbook.

The healthcare sector has gained momentum lately on market rotation, with investors rushing to buy beaten-down stocks while shunning the hot technology sector.

Compelling valuation, innovation in specific growth areas and an aging population as well as increasing healthcare spending are the tailwinds of the medical sector.

Demand for Health Care services is inelastic and expected to grow due to aging population and economic slowdown. XLV ETF provides cheap investment in healthcare companies across various sub-sectors like pharmaceuticals, healthcare equipment, and biotechnology. Healthcare sector offers potential for higher long-term returns, but faces risks like regulation, patent expirations, and pricing pressure.

The Health Care Select Sector SPDR ETF (XLV) was launched on 12/16/1998, and is a passively managed exchange traded fund designed to offer broad exposure to the Healthcare - Broad segment of the equity market.

XLV tracks the 64 Health Care stocks in the S&P 500 Index. Its expense ratio is 0.10% and the ETF has over $40 billion in assets under management. With a 12% weighting in the S&P 500 Index, Health Care is already well-represented in most portfolios. Attractive fundamentals should support a buy rating, but that's not the case today. Except for Eli Lilly and a handful of others, XLV lacks the growth potential to support its excessive valuation, which rivals SPY on forward earnings and trailing cash flow.