On the day the country celebrates 70 years of the NHS, we look at the current state of companies associated with healthcare and pharmaceuticals.
Investor check-up: we examine whether now is the right time to buy healthcare stocks
- General picture for sector is an improving one as people live longer and incurable chronic conditions increase opportunities.
- Government cuts remain high risk but demand is expected to outweigh
- The Share Centre highlights GlaxoSmithKline, AstraZeneca, Smith & Nephew and Convatec as companies which offer range of exposure.
Today one of Great Britain’s most iconic institutions reaches its 70th anniversary and on a day in which those associated with the NHS and those appreciative of its services celebrate, it’s likely that you may also be looking to healthcare and pharmaceutical companies to explore what may be in the pipeline over the next 70 years.
The general picture for companies related to the healthcare sector is encouragingly an improving one, whether it be maintainers of hospitals and rehabilitation centres, manufacturers of medical devices and supplies to drug and vaccine research and development groups. Changes in global demographics are working in favour of this sector in the sense that ageing populations in developed economies are resulting in the need for greater spending on healthcare products and services; while rising income levels in developing regions is making healthcare affordable, this is an area where big inroads can be made in the future. Closer to home, certain modern day health problems such as diabetes and obesity are additionally continually presenting opportunities.
Undoubtedly risks remain. Throughout the world, spending on healthcare is largely controlled by governments and as the NHS knows all too well, money into this area can be one of the first to be cut-back when times are hard and therefore a higher risk is associated with the sector during economic downturns. Moreover, it’s often the case that smaller companies are working on just one or two drugs and therefore success or failure is paramount to the company’s survival. Consequently, there’s no escaping the longer term view that we would advise investors take when exploring healthcare related companies.
Longevity is the key trait of one of our favourites in the sector, GlaxoSmithKline who have been in existence for even longer than the NHS. The now FTSE 100 listed company started in 1715 with the opening of an apothecary shop in London and following a number of scientific breakthroughs, including the first treatment for HIV, is now one of the world’s largest pharmaceutical companies. The group is cash generative and committed to paying attractive dividends and returning capital though share buybacks, and prospects from the group's R&D are promising and should help drive organic growth. All of this combined makes it a core holding for many investors.
How else can you get exposure to the healthcare sector?
At The Share Centre, we remain optimistic about the wider sector and this is cemented by a number of companies that fall within sectors associated on our recommend shares to ‘buy’ list.
For those looking for an alternative to GSK on the pharmaceutical side, AstraZeneca could be a good option. The group has been on a cost cutting exercise and the long awaited turnaround in sales has begun to show recently; investors can therefore expect the first pickup in group sales for several years. Whilst its management have guided sales growth on the lower level, in the meantime the dividend pay-out should remain attractive and grow steadily.
To get other exposure in the sector, we’d suggest investors look at Smith & Nephew. The group manufactures medical devices and implants and is benefitting from new tools and techniques enabling surgeons to operate more effectively and carry out procedures that were not previously possible. It has recently benefitted from favourable foreign exchange rates and investors should appreciate that there is an attractive pipeline of new products and the group is set to benefit from investments in marketing and acquisitions.
Another good option could be Convatec, a group which develops and sells medical products and technologies related to therapies for the management of chronic conditions, such as diabetes. The underlying market which the group serves is defensive in nature and worth noting is that it has been gaining market share, launching new products, increasing marketing direct to consumers and entering new markets.
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