Emanuel said he expects earnings for the broader S&P 500 to grow by 5.9 percent in 2017. "When you look at the bar, it's set reasonably for health care," he said. He reiterated his overweight on the group this week.
In the second-quarter earnings season, the S&P health care sector had the second highest percentage of earnings growth of the major S&P sectors, with growth of 7.5 percent, according to Thomson Reuters. It also had the highest proportion of companies beating earnings estimates.
Much of Wall Street has been bullish on the sector. In a quick survey this summer of eight major investment analysts' calls on S&P 500 sectors, CNBC found six of those firms were overweight health care.
"Some price regulation is priced in. We all know how difficult passing some type of regulatory reform is going to be in such a bitter and partisan environment in Washington. When we look at it, (the market) is not pricing in, for whatever reason, the potential upside which is derived if you could have politicians that steer you toward tax reform next year," he said.
Trump and some Republicans would like to grant a tax holiday
so that companies could repatriate the cash they are hoarding overseas, as well as reduce the corporate tax rate. Emanuel said tax rules could be subject to negotiations, no matter who is in the White House.
"Health care has $167 billion worth of offshore cash, second only to technology. If that cash is coming home, we could see it finding its way in the normal means we've seen in terms of return to shareholders over the last several years, either by buybacks or increased dividends," said Emanuel. He also said the industry could use the cash to continue its merger spree.
Credit Suisse added Zoetis to its focus list this week. Eli Lilly has been on the list. McKesson, Amgen, Aetna, Zimmer and Biogen are among the health care names Morgan Stanley is over-weighting.
UBS has buy ratings on AbbVie, Edwards Lifesciences Corp, Gilead, HCA Holdings, Johnson and Johnson, Merck, Pfizer and United Health.
Emanuel said the current discount of 1.5 multiple points for the health care sector relative to the overall S&P 500 compares to a lower, approximate average of 1.1 points during the Clinton era.