Health care stocks are hated, but we're buying them: Smead CEO

Healthcare
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Health care stocks have been beaten up, but Smead Capital Management believes investors are missing a buying opportunity, CEO Bill Smead said Monday.

Amid what's been a tough year for the sector, S&P 500 health care stocks are down nearly 7 percent year to date, lagging behind all other sectors. Smead, however, said he's still a believer.

"We're large cap value people. We want to buy meritorious, wonderful companies when everybody else hates them, and I certainly say they hate health care right now," Smead told CNBC's "Squawk on the Street."

Among Smead's picks are Merck, Pfizer, and Amgen, companies that he said boast price-to-earnings ratios well below broader market measures, "fantastic" dividends, and free cash flow.

Election year uncertainty is just one factor weighing on the space.

Democratic presidential primary front runner Hillary Clinton has said she would tackle "price gouging" by drug makers if she takes the White House. Both she and Donald Trump, who leads in the GOP contest, support giving the government the right to negotiate drug Medicare drug costs.

Asked if he was concerned about those campaign trail comments, Smead quoted economist John Templeton, saying, "If you can see the light at the end of the tunnel, you're too late."

Health stocks will sink to "the point at which no one wants to own them, rather than six months later when you're closer to the end of the populist rhetoric," he said.