In the back
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Politics has become noisy
and excitable but, when the
dust settles, pragmatism
will win out
Paul Major of the BB Healthcare
Trust says investors should ignore
the short-term noise around
healthcare and focus instead on
the long-term themes powering
the three stocks below
The bigger
picture
Democratic hopefuls in the US, as
well as ambiguous economic data
that has seen wild gyrations in
investor risk appetite.
It is worth stepping back from
the noise and looking at the bigger
picture. Healthcare remains a secular
demographic growth story beyond
the machinations of the economy.
Affordability issues are a growing
challenge but these present investors
with exciting prospects. Politics has
become noisy and excitable but,
when the dust settles, pragmatism
will win out.
H
ealthcare has been a
challenging area for global
investors during 2019: the
sector has made about 12 per cent
year-to-date versus 18 per cent for
the wider MSCI Global index. It has
been buffeted by myriad macro-
political factors, including populist
policies from the White House and
Our health is bound
to our genes as we in-
herit differing disease
risks. When we are sick,
the body’s response is a
product of switching vari-
ous genes on or off. Thus,
genetic information could
become the foundation of
accurate diagnosis of risk
for effective preventative
FE TRUSTNET
care and intervention for
acute care. It may be too
early to pick the winners,
so a “picks and shovels”
approach could be the best
bet. Illumina has been
called the Microsoft Win-
dows of the genetic age
in that it is an ubiquitous,
scalable platform that can
be adopted by the widest
range of enterprises, mak-
ing it the gold standard.
Apparently, the Demo-
crats are eradicating
private health insurance
in the US. Let’s skirt over
practicalities such as the
party winning control of all
three branches of govern-
ment in 2020 and passing
legislation that seems to
be financially inadequate
and yet will cost $3trn over
10 years. In reality, private
underwriters do a better job
of managing health-insur-
ance risk than the state and
the proposals do little to
curb healthcare cost infla-
tion. The 2019 sell-off in US
health insurance stocks is
thus a compelling opportu-
nity. We think the cheapest
and best-positioned from a
competitive position on a
multi-year view is Anthem.
The pharmaceutical
sector has lagged wider
healthcare in 2019, again
due to politics – bashing
drug companies is one
of the few pastimes that
unites Americans. Bristol-
Myers Squibb has under-
performed its peers as the
market grapples with un-
certainties over its acquisi-
tion of Celgene, leaving it
the cheapest of the large-
cap pharma stocks. The
combination will be a veri-
table cash machine, able to
pay down transaction debt
in five years while buying
back stock and investing in
the business. We see a 30
per cent discount to peers
that deserves to close, with
solid earnings growth fur-
ther compounding returns.
trustnet.com