Is the Healthcare sector an under appreciated investment opportunity? Andrew Duncan, Senior Equity Analyst at Killik & Co, looks at what’s making her;thcare more attractive now.
The emergence of the mega-cap technology stocks in the US has rightly been the biggest story in equity markets over the last decade, with the strong performance from a relatively small number of stocks lifting the overall market significantly. Whilst the performance of these stocks has understandably gained considerable investor attention over this time, it has also had the effect of drawing the spotlight away from other interesting areas of the market that we believe deserve to be considered. One such area that falls into this category is the Healthcare sector.
Why healthcare, why now?
Despite the sector’s underperformance over the last ten years, the healthcare industry has two key features that make it attractive for long-term investors. Firstly, the industry has excellent long term demand prospects driven by an ageing global population, given healthcare demand increases significantly as people get older. At the same time, rapid economic growth and the rise of the middle class in emerging markets is expected to lead to greater demand for and access to healthcare. Additionally, demand for healthcare is largely immune from economic weakness, which means healthcare stocks are usually more resilient in times of economic downturns or recessions.
Secondly, there is still a huge unmet need in many areas of the healthcare market, including cancer, obesity and Alzheimer’s to name just three. In order to meet these challenges, drug companies continue to invest significant amounts in research and development (R&D). The healthcare sector is also innovating in other areas including robotics and medical devices, alongside next-generation treatments including cell and gene therapies that have the potential to transform the way we treat complex conditions.
What are our picks?
At Killik, we put our healthcare stock picks into three broad categories. First, companies that play to the growth in healthcare R&D spend as well as the trend towards outsourcing of drug development and manufacturing, such as Thermo Fisher Scientific and Lonza. Additionally, we like companies that are innovating in other areas to improve patient outcomes such as Intuitive Surgical, the world leader in robotic-assisted surgery (RAS). Lastly, we also invest in a select number of pharmaceutical companies that have successful portfolios of drugs and attractive pipeline of potential future products, such as AstraZeneca and Eli Lilly.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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