Three stocks to buy for healthy long-term growth

A professional investor tells us where he’d put his money. This week: Ketan Patel, manager of the Amity UK fund at EdenTree Investment Management

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 depth and breadth offered by the global healthcare industry is second to none. It includes well-established multinational companies operating in drug research and development, life sciences, diagnostics, distribution, medical technology and animal health. Moreover, the mix of quality, defensive and growth stocks in the healthcare industry should appeal to all types of 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. 

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.

Recommended

Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021
What's behind Britain’s looming energy crisis
Energy

What's behind Britain’s looming energy crisis

Global natural gas prices have soared as resurgent demand collides with supply disruptions. The UK is especially vulnerable and could be heading for a…
24 Sep 2021
University spin-outs: where to find companies involved in cutting-edge science
Share tips

University spin-outs: where to find companies involved in cutting-edge science

Universities are innovation incubators and often launch businesses involved in fast-growing fields ranging from biotechnology to artificial intelligen…
24 Sep 2021
The Information Age is about to get interesting
Economy

The Information Age is about to get interesting

The IT revolution has been around for a while now, says Merryn Somerset Webb. But we're just getting to the good bit.
24 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021