The race to develop a commercial vaccine for Covid-19 has brought the healthcare industry into sharp focus. It is a highly diverse and rich area of the market for all types of investors. A growing global population, which is both ageing and ailing, remains a highly supportive long-term backdrop for the sector. The rise of the middle class in emerging markets is another tailwind, with more patients able to afford healthcare. Changes in their dietary habits, meanwhile, will lead to an increase in chronic conditions such as diabetes, autoimmune and cardiovascular diseases.
A sector to suit all investors
The medical-technology subsector contains well-established groups such as Smith & Nephew, which have built high-quality businesses capable of delivering long-term earnings growth. The search for companies that can deliver year on year, so-called compounders, is the Holy Grail for investors with a long-term investment horizon.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In the mid- and small-cap segments, well-positioned businesses with material exposure to the diagnostics and life sciences sectors include Bioventix, Clinigen, IP Group, Smiths Group, Oxford Instruments and Spectris.
Solid blue-chip income
Meanwhile, the large-cap pharmaceutical research and development (R&D) giants, such as GlaxoSmithKline, have defensive business models with low leverage, high margins, strong cash-flow generation and sustainable income. It is no surprise that this sector has stood up well during the coronavirus pandemic. What’s more, there has not been a dividend cut in this part of the market for more than two decades (excluding mergers and acquisitions). This remains a big draw at a time when the global dividend landscape has been fractured by cuts, suspensions, cancellations and deferrals.
Large-cap growth opportunities
There are also growth opportunities in the large-cap segment, with the likes of AstraZeneca offering highly attractive earnings growth for investors. Long-term investors in AstraZeneca have been well compensated: it has become the most valuable company in the FTSE 100, closely followed by GlaxoSmithKline. Within animal health, a sector forecast to grow by a third to $44bn by 2024, market-leading companies such as Genus and Dechra Pharmaceuticals are set to deliver double-digit earnings growth.
GlaxoSmithKline (LSE: GSK), AstraZeneca (LSE: AZN) and Smith & Nephew (LSE: SN) are global leaders in their areas and have developed business models with low leverage and high margins, which leads to excellent free cash flow over an extended period of time. Driven by long-cycle macro trends, all three firms look set to continue to deliver for long-term investors – regardless of the macroeconomic environment.
-
How to pay in a chequeReceiving or writing a cheque has become much less common in recent years as instant bank transfers have grown in popularity. Amid widespread bank branch closures, we explain what to do if you get a cheque, and how you can pay one into your bank account.
-
Crypto assets of seven million UK investors at risk – how to keep yours safeCryptocurrency wallet rules make it hard to track down assets after someone has died, even if they leave a will saying who they would like to inherit them
-
8 of the best properties for sale with kitchen gardensThe best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicatorsOpinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growthGrowth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estatesThe best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
What we can learn from Britain’s "Dashing Dozen" stocksStocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flowsOpinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
