Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group
Focus: Healthcare stocks
Original Link: https://www.bnnbloomberg.ca/paul-macdonald-s-top-picks-july-5-2018-1.1103730 _______________________________________________________________
Aging global populations, increasing wealth in developing economies and technological innovation set the backdrop for the structurally positive, non-cyclical and permanent long-term growth drivers for healthcare sectors.
Widely known political discussions on how to deal with the rising U.S. healthcare costs caused the sector valuation multiples to contract. The political discussion has more recently flowed through to subsectors beyond drug manufacturers and recently has focused on the “middlemen,” such as drug distributors. This, coupled with the recent entry of Amazon into the online pharmacy space, has also highlighted other areas within the broader healthcare system that may contribute to lower overall net prices paid by consumers for their prescription drugs. We would expect that, as the political conversation on drug prices shifts away purely from the manufacturers, valuation multiples will revert to normalized levels. It’s also worth noting that we expect the broader trade tariff discussions to have limited fundamental impacts to the healthcare space, particularly those exposed to complex drug manufacturing and the managed care companies with purely domestic revenues.
Ensuring companies have differentiated products, solid development pipelines and proven histories of execution is key for navigating the shorter-term noise and being positioned for important catalysts over the medium term.
Lastly, the increase in the implied volatility levels has resulted in attractive income derived from covered call strategies, such as the one used in the Healthcare Leaders Income Fund.
Paul MacDonald’s Top Picks Paul MacDonald of the Harvest Portfolios Group shares his top picks: Merck, Anthem and Amgen.
MERCK & CO () We initiated a position over three years ago. Cost base at around US$59.
Merck & Co is a large-cap diversified drug manufacturing company. It has a proven ability to generate consistent returns and has offset patent declines due to their deep pipeline of new drugs from acquisitions and organic R&D. The company has an attractive yield and balance sheet. Of note is that Merck has continued to generate positive developments from Keytruda, its leading immuno-oncology therapy, with the recent data validating its market leadership.
ANTHEM INC (ANTM.O) We reinitiated a position in Anthem in January of 2017. Cost base at around US$175.
Anthem is a leading health insurer in the U.S in 14 states as a licensee of Blue Cross through its Blue Cross & Blue Shield Association. In addition to leading brand recognition, Anthem stands to benefit from significant positive macro tailwinds that are expected to occur over the medium term. We continue to hold approximately 10 percent weight towards this subsector split between United Health and Anthem.
AMGEN () We initiated a position over three years ago. Cost base at around US$167.
Amgen is one of the largest biotechnology companies in the world. It has a proven ability to extract value through acquiring late-stage drugs coupled with a deep organic pipeline. Amgen has significant biotech and biosimilar exposure without the binary outcomes that many smaller biotech companies have. Recent data indicate that strong takeup in its new migraine franchise and its innovative cholesterol drug will provide positive growth over the next two years and make up for any of their biologic drugs coming off patent.
PAST PICKS: SEPT. 14, 2017
Paul MacDonald’s Past Picks Paul MacDonald of the Harvest Portfolios Group reviews his past picks: Merck, Allergan and UnitedHealth.
MERCK & CO ()
Then: $66.12 Now: $61.68 Return: -7% Total return: -4% ALLERGAN PLC ()
Then: $223.70 Now: $172.15 Return: -23% Total return: -22% UNITEDHEALTH GROUP ()
Then: $197.73 Now: $250.63 Return: 27% Total return: 28% Total return average: 0.67%
Healthcare Leaders Income ETF invests in an equally weighted portfolio of 20 large-cap healthcare issuers that trade on a North American exchange and have listed options. The fund uses a quantitative screening process for security selection and uses an active and flexible covered-call strategy to generate additional income. There are two classes of the ETF that trade on the Toronto Stock Exchange: HHL.TO is priced in Canadian dollars and hedges the portfolio’s non-Canadian currency exposure, while HHL_u.TO trades in U.S. dollars and is not currency-hedged. The fund pays a tax-efficient monthly distribution of $.0583 (CAD in respect to the HHL.TO and USD in respect to HHL_u.TO).
Performance as of: June 29, 2018
1 Month: 1.50% fund, 1.33% index 6 Month: 1.75% fund, 1.52% index 1 Year: 1.09% fund, 4.88% index 3 Year: 2.70% fund, 3.19% index * Index: MSCI Daily TR World Net Healthcare, USD * Numbers based on a regulatory requirement to include reinvestment net of fees.
TOP HOLDINGS AND WEIGHTINGS AS OF JUNE 29, 2018
Boston Scientific Corporation: 5.5% Medtronic PLC: 5.4% Stryker Corporation: 5.3% Quest Diagnostics Incorporated: 5.3% GlaxoSmithKline PLC: 5.3% Anthem, Inc: 5.2% AstraZeneca PLC: 5.2% Pfizer Inc: 5.2% Allergan Public Limited Company: 5.2% Amgen Inc: 5.2%