Could healthcare shares be good for your wealth? Ian Cowie thinks so. In The Sunday Times at the weekend, he said that he was buying shares in Worldwide Healthcare investment trust at a price 16% below their level only a month ago.
The biotech sector might have taken a tumble, he says, and some of the biggest healthcare stocks might have a few problems (GSK is caught up in a bribery scandal, for example), but healthcare remains an excellent place to be: "as the global population gets older and richer demand for healthcare is likely to rise."
I'm entirely with him on this idea. I'm also keen on the WH Trust; and the sector has vindicated his views almost instantly with this week's blizzard of stock boosting deals (see this week's Moneyweek out on Friday for more on this).
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
But within all the talk about the future of the sector and the great gains to be made along the way, one small thing is bothering me about some of the big US listed stocks in healthcare and beyond.
In The Times today, Susan Thompson notes that "a common thread linking the bulk of the $90bn healthcare deals done in the past year is tax." The holy grail for drugs companies is not so much the deals themselves, but the way that, if correctly structured, the deals can allow companies to relocate their headquarters for tax purposes something known as 'tax inversion'.
The prospect of an inversion has apparently been raised with regard to the proposed deal between Pfizer and AstraZeneca and "most commentators agree that America's corporate tax regime has been a driving factor in recent inversion transactions" (this Bloomberg piece is interesting on the subject).
A large number of US companies (Pfizer included) have huge volumes of cash overseas that, as City AM notes, they "loath to repatriate" for fear of the hefty tax bills that might follow hence the need to find foreign acquisitions or inversion possibilities that might use up some cash and offer a new low-tax headquarters.
But there's a question here about valuations. As tweeter Shinsei1967 notes, the traditional (and I think most valid) way of valuing a company is to add up the future stream of income expected from its dividend payments and give it a present value.
So, what happens to the valuations of companies that won't repatriate cash and so won't pay out the dividends they should (and of course can't acquire other US companies)?
Pfizer might be planning to tax invert now, but surely firms in similar positions should see their shares trade at large discounts to their net asset values rather as those in investment trusts that hold only illiquid assets do at least until they too invert or there is a hint that the US corporation tax regime might relax. Cash is always worth less when you can't get your hands on it.
-
The top stocks in the FTSE 100After a year of strong returns for the UK’s flagship index, which FTSE 100 stocks have posted the best performance in 2024?
-
A junior ISA could turn your child’s pocket money into thousands of poundsPersuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
