Sunday 18 August 2019

Ken Fisher: Don't miss out on a future healthcare stocks boom

Growing market: Adjusted for inflation, US, German and French healthcare spending per capita has risen roughly 100pc since 2000. Irish spending rose by 205pc
Growing market: Adjusted for inflation, US, German and French healthcare spending per capita has risen roughly 100pc since 2000. Irish spending rose by 205pc

Ken Fisher

WHICH stocks look best for the next 10-plus years? Investors often ask that. Super-long forecasts are treacherous at best. But I'd bet on healthcare.

It combines innovative, profitable, growing businesses with structural tailwinds likely to last decades.

Plus, big-pharma is relatively cheap, having long lagged the market, increasing future appreciation prospects.

Despite pharmaceuticals being a third of Irish exports, the ISEQ has almost no healthcare stocks, so shop globally.

Most observers would likely pick technology instead. Why? Momentum.

In this bull market, since March 2009, global tech stocks are up 677pc - blowing away healthcare's 370pc. In the past three years, tech rose 87pc, fully doubling global stocks' 35pc. Healthcare? 20pc - lagging.

In 2019, tech leads at 36pc, while healthcare trails at 11pc. Ireland is also light on tech stocks, a blind spot explaining why the ISEQ lags global stocks by 4pc this year.

Tech's sizzling returns and alluring narrative appeal to late-stage bull market buyers.

I'm optimistic on tech in the near term, especially the biggest firms. But healthcare offers similarly world-changing companies.

Researchers increasingly employ artificial intelligence to expand datasets vastly beyond clinical trials. Others have invented processes reviving frozen organs, critical for transplant patients.

Genomic breakthroughs allow drugmakers to better-target treatments.

Last year, Irish researchers at Waterford Institute of Technology found a specific dietary fish supplement can delay Alzheimer's. All are examples of breakthroughs developing almost daily.

Drug demand will surge. Most healthcare consumption comes later in life.

The world is getting older and richer, partly due to past medical advances. Folks are living much longer everywhere. World Bank data shows life expectancies in high-income nations rose from 70.1 years in 1967 to 80.7 by 2017.

Irish rates are up too, from 70.7 to 82. Poor countries have also surged, from 42.4 to 63.2.

That means more elderly people everywhere: America, Europe, Asia and emerging markets.

The global 65-plus population rose from 179 million in 1967 to 678 million last year. The UN foresees a billion by 2030.

From that, age-related illnesses rise too. Diabetes, from both ageing and expanding wealth and lifestyle impacts in emerging markets, is exploding.

Some 425 million people suffer from it globally, a figure forecast to surge almost 50pc by 2045.

Diabetes Ireland forecasts 278,850 local cases by 2030, up 23pc from 2018.

Cancer - more common as affluence grows - increases similarly. The Institute for Health Metrics and Evaluation estimated 100 million people had cancer in 2017, up from 1990's 45 million. Ireland, with the world's third-highest cancer rate, isn't spared.

Dementia and Alzheimer's afflict another 94 million older people, a rate which is also on a tear.

With all this, fast economic development in emerging markets equals fast demand growth for drugs and medical devices.

Adjusted for inflation, US, German and French healthcare spending per capita has risen roughly 100pc since 2000. Irish spending rose more, by 205pc.

The world's two most-populous countries, India and China, saw spending soar 234pc and 840pc, respectively. That should continue as their consumers get richer.

Big drug stocks have features investors usually prefer as bull markets progress: relatively predictable revenue growth, very fat gross operating margins (sales minus direct cost of goods sold), quality management, strong balance sheets, defendable and growing markets, and huge size, with global household-name recognition.

Sound like mega tech stocks? No other categories share all these features. The kicker: drug stocks' recent lag favours them, moving forward.

Usually, categories leading one bull market don't lead the next. That's an almost perfect history, like tech leading in the 1990s bull market but lagging in the 2002-07 bull market, when drug stocks led.

Regulatory fears soured drug stock sentiment within this bull market.

That will be very old, tired news looking a few years ahead.

Lagging now doesn't stop drugs from leading next time. If tech doesn't lead, then what else can?

For your long-term portfolio, buy some huge global drug stocks now - before others figure all this out.

Ken Fisher is the founder and executive chairman of Fisher Investments, and chairman and director of Fisher Investments Europe. His regular column for the Irish Independent is published on the first Thursday of every month

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