Healthcare stocks ready for new growth

Andy Acker: Hello, I’m Andy Acker, Portfolio Manager at Janus Henderson.

Dan Lyons: I’m Dan Lyons. I’m a Portfolio Manager at Janus Henderson, as well.

Acker: And we’re here to give you a quick update on the healthcare sector.

We think this is an attractive time to be investing in the healthcare sector. And it’s usually after a period of underperformance that investors get less interested. And it’s exactly when we think an investor should be more interested.

So far this year, there’s been a lot of excitement about technology, about A.I. And I think really an expectation coming into this year that we were going to be facing a recession. There’s now more of an expectation that we’re going to have a soft landing. We’ve seen inflation coming down.

On the other hand, we think those risks still remain. And we have to keep in mind that all of the monetary slowing that’s been in the pipeline still takes time to play out. And so, we think as that works its way through the economy, we could still see a substantial slowing of the economy and a potential recession, especially as we get into 2024. That’s when I think the defensive characteristics of the healthcare sector really rise to the fore and become more appreciated.

At the same time, the valuations in the sector are at significant discounts to the overall market, whereas historically, they trade at premiums because of their durable nature of growth in the sector.

And then finally, you have this wave of innovation where we’re seeing this revolution in biology that’s driving so many new products. This year we think will be a record year for new products; as many as 80 could be coming to the market. And this is driving a whole new product cycle in healthcare that we think could drive growth, not just for the next few years, but for the next decade or more.

Lyons: We’ve seen more than a dozen takeouts within the sector year to date. So, we’re also seeing that large pharma has a huge need to fill their pipelines, and they’re going out and going shopping and buying companies that are truly innovative in this space. And so, we think that there’ll be even more of that to come. I’ve seen estimates of around $600 billion of cash that’s out there available for potential spending on M&A [mergers and acquisitions]. And we think that’s going to be an important driver of interest in the sector, as well.

Acker: So, we see a combination of an attractive entry point, the potential for a slowing economy, and high innovation in the sector, all driving a very attractive time to be looking at the sector.