The health care sector often performs drowsy, but in this market turmoil, the third quarter could prove to be one of the areas of not only safety — but growth. The third quarter can be a turbulent time after the worst first half for stocks since the 1970s. As investors fear heavy inflation and an overwhelming Federal Reserve, they are looking for places that can still generate some profit and income. The steady earnings power and dividend quality of some health care companies can be a welcome stop for investors. The broader health care sector is one of three investment ideas chosen by analysts to outperform during the summer months. Others were bank stocks and companies that generate a great deal of free cash flow but are unaware that investors are shorting them. According to the CFRA, the health care sector and the biotech industry have traditionally outperformed in the third quarter of a midterm election year. Despite regulatory concerns, the region has generally been an island in a stormy quarter. The S&P health care sector has outperformed the S&P 500 this year, losing nearly 21% in the first half. Over the same period, health care declined by only 9%. For the second quarter, the Health Care Select Sector SPDR Fund, which represents the S&P health care sector, declined 6.4%, while the S&P 500 declined 16.4%. Health care, historically, was the best-performing key sector in the third quarter of the years when the midterm elections were held. Going back to 1990, the sector itself was up 4.4% in those quarters, compared to the S&P 500’s average decline of 1.8%. CFRA data also shows that among the S&P subsectors, the best-performing was tobacco, up 6.4% in the third quarter of the mid-term years. But all the other positive subsectors were in the health care sector. This includes health care facilities, up to 6%; Pharmaceuticals, up 5.1%; health care equipment, up 2.1%; Health Care Distributors, up 2% and Supplies, up 1.8%. Sam Stovall, CFRA’s chief investment strategist, identified some companies in the health care subsectors that investors might consider. These include HCA Holdings; pfizer; Tandem Diabetes Care; Patterson Cos.; Technology and Walgreens Boots Alliance align. David Bianco, America’s chief investment officer at DWS Group, said he also sees opportunity in health care, and he places the most weight in the sector in his DWS Sector Strategy Fund. “We think this is growth at a fair price, not at risk from higher interest rates,” he said. “This includes pharma and biotech.” The biotech has been overrun by high-growth names, and both Stovall and Bianco say it’s time to take a look. The iShares Biotechnology ETF is moving up from its lows, but it’s still well below its 52-week high of $177.37 per share. Bianco said he weighs more in the biotech sector, among them Abby and Amgen. In the most recent CNBC Delivering Alpha survey, 58% of investors said health care should be one of the biggest winners at the end of 2022. CNBC surveyed nearly 500 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money. survey this past week. Energy topped the list with 68% expected to be one of the best performers, and third was Financial with 34% expecting the sector to do very well. Banks aren’t the culprit this time, Bianco is one of those few financials favors, and he expects bank stocks to perform very well later this year. He likes major banks JP Morgan, Wells Fargo, Bank of America, Citigroup as well as PNC Financial. “Their profitability is driven by short-term interest rates, not the shape of the yield curve,” Bianco said. He said that if there is a recession, it will not be because of the banks unlike in 2008. “We don’t expect this to lead to a credit crisis.” Besides banks, he likes insurers like Chubb & Marsh and McLennan. When in doubt, look for cash flow, said Julian Emanuel, head of Evercore ISI Equity, Derivatives and Quantitative Strategy, adding that he is looking for stocks across all sectors that will help him withstand both inflation and a weakening economy. Can do, but can also perform better. First, companies have to generate a lot of free cash flow, and they must be stocks that are widely undervalued. “It’s been said that cash is a liability in an environment of high inflation. Not only do we disagree, but we strongly disagree. We want stocks that throw a lot of cash, and we want stocks that people like all the way.” Keep reducing,” he said. Emanuel made a list of companies that met his criteria with a market capitalization of more than $5 billion. He also picked companies that did not make a new low in June, unlike the S&P 500. The list included a mix of regions. Energy names on the list were among the highest generators of free cash flow. For example, Occidental Petroleum is expected to have free cash flow of 25.5% and Ovinitiv is expected to have 24.7%, according to estimates from Evercore. Consumer discretionary names also made the list. Dick’s Sporting Goods is projected to have free cash flow of 16.3% and luxury retailer Capri Holdings, 12.7%. Capri owns the Jimmy Choo and Michael Kors brands, among others. Also on the list was Omega Healthcare, which had an estimated free cash flow of 12.3%. REIT works with assisted living facilities.