Why healthcare stocks got a bump from Trump

Glenn Freeman  |  28/11/2016Text size  Decrease  Increase  |  

Glenn Freeman: I'm Glenn Freeman for Morningstar and I'm joined today by Chris Kallos, our Australian healthcare equities analyst.

Chris, thanks for joining us.

Chris Kallos: Thank you, Glenn.

Freeman: Just firstly Chris, Australian healthcare companies have been performing quite strongly, particularly in recent years. Why is this?

Kallos: Well, a combination of things. Firstly, on a relative basis, we've seen the mining sector fall away. Banks have been up and down.

So, healthcare has been pretty consistent.

Added to that is the fact that many of the large healthcare companies that we have around us today have been around for a number of decades during periods of volatility.

So, what we're seeing now is a seasoned performance, if you will. People have gone through rough patches who have benefited from consolidation, who have worked up very strong business models--and names that come to mind include Ramsay, Sonic, CSL.

They've been around for decades. So, it stands to reason that they've worked out certain wrinkles in their business plans and their business models and that's what we see today.

Freeman: Now, Chris, in the lead up to the U.S. election and in the immediate aftermath, the US healthcare sector has seen some pretty big movement. How has this been reflected in the Australian healthcare sector?

Kallos: Well, the healthcare sector like all the other sectors were bumped on the election of Donald Trump.

There is a high expectation that he will roll back some red tape for drug approvals in the FDA and there's also now a reality of Hillary Clinton not being able to execute or act on her promise to control drug prices.

So, both of those things have been seeing positively for the US healthcare sector and we've moved in tandem out of sympathy or sentiment.

Obviously, not every stock is affected the same way, but companies like CSL, Mayne Pharma on the generics side, theoretically could benefit from this kind of rhetoric on Donald Trump's side.

Freeman: The US government has been conducting an enquiry into generic drug pricing. How has this flowed on to Australian companies?

Kallos: That's right, Glenn. Well, that probe came directly as a result of a few scandals last year in generic pricing and allegations of gouging which fueled a lot of the rhetoric that the democrats were pushing.

The probe itself is into certain generic molecules of doxycycline and digoxin. The only companies that are affected in that space are Mayne Pharma.

However, these are very small components in their overall portfolio. I don't think it's got any bearing on their business as such going forward.

Freeman: Now, just lastly, looking ahead, where do you expect growth will come from for Australian healthcare companies?

Kallos: Given that the large caps, namely, CSL, ResMed, Ramsay and Sonic are all now global companies, I think most of the growth will come offshore. That's definitely the case with Sonic and Ramsay.

Ramsay is the number one private service provider in France, for instance. They've got a very strong business in the UK.

Sonic, likewise, is doing a lot of work in Europe and also the UK. And that makes sense given that their market share is almost kept out in the Australian domestic environment.

 

Video Archive...

Earnings season wrap: BHP exercises good cost control
27/02/2017  As the curtains close on the 1H17 reporting season, BHP books earnings that are slightly softer than expected, while Woolies takes market share at the expense of margins.
Possible $2.5bn tailwind to drive hybrid demand in 2017
22/02/2017  Strong supply dynamics and ongoing economic stability should create significant opportunities for hybrid investors in 2017, according to John Likos, senior credit analyst, Morningstar Australia.
Earnings season wrap: Telstra feels competitive heat
17/02/2017  As the 1H17 earnings season rolls on, Wesfarmers posts a bumper profit, Newcrest restores its interim dividend, while Telstra's profit falls as it feels the heat of intense competition.
Earnings season wrap: Rio Tinto's dividend surprises
10/02/2017  Rio Tinto delivers a surprise full-year payout of US$1.70, NAB records a soft first quarter, and CIMIC posts an annual net profit in line with Morningstar's expectations.
Leveraging the opportunity of international students
07/02/2017  Co-founder and CEO of Navitas, Rod Jones, explains the firm's business model, which is built largely around international students and university partnerships.
Xero CFO gives outlook for 2017 and beyond
02/02/2017  Sankar Narayan, chief operating and financial officer of accounting software firm Xero gives his insights on the company's business model and outlook, with Morningstar analyst Gareth James adding his views
Asia growth engine not threatened by Trump, says Barings
30/01/2017  Long-term investors in China and wider Asian equities should not worry about President Trump, says Barings head of Asian equities Hjung Jin Lee.
Shifting fortunes for ANZ, more of the same for CBA in 2017
12/01/2017  Australian banks are well-positioned as they head into 2017, with ANZ moving from least profitable in 2016 to become one of the sector's top performers and CBA remaining an investor favourite.
Is Trump a threat to emerging markets?
12/01/2017  Is President Donald Trump a threat to emerging market returns? Paul Jackson from the UK-based Source ETF considers the outlook for sector and where investors can find the best opportunities.
Platinum, Aussie banks and Peter Warnes among top interviews of 2016
22/12/2016  We look back on some of our most notable interviews of the year, as Morningstar analysts and external experts helped us delve into some of the biggest events that shaped Australian and global markets in 2016.
Oil price finds sweet spot, while mining hits rock bottom
20/12/2016  The rise in oil prices should see improved performances from Australian producers in 2017, while mining services companies will continue to struggle amid weaker Chinese demand, says Morningstar equity analyst Mark Taylor.
How Greek mythology can make you a better investor
07/12/2016  Don't be over confident or follow the herd, and like Odysseus, learn to have yourself "tied to the mast" when it comes to long-term investing.
Supermarket headwinds prompt fair value cut for majors
06/12/2016  Growing competitive pressures and a declining revenue outlook for Australia's two grocery giants now look to be part of a longer-term, structural shift.
What returns should you expect from markets?
01/12/2016  As market risks rise, investors must adjust their profit expectations--gone are the days of 8 per cent returns. But there are still growth opportunities out there if you know where to look.
Why healthcare stocks got a bump from Trump
28/11/2016  Australian healthcare and pharmaceutical companies continue to enjoy a purple patch, and for various reasons including the recent US election result, explains Morningstar's healthcare equities analyst Chris Kallos.
Equity and hybrid investors react as bond prices tumble
24/11/2016  The negative correlation between bonds and equities is reasserting itself following the US election of Donald Trump, according to John Likos, Morningstar's senior credit analyst.
2 global themes that are finding favour among ETF investors
15/11/2016  Australian retail investors are increasingly turning to ETFs for specific tactical exposures to global themes, particularly in the context of large-scale market events such as US election 2016.
Maintain discipline and stick to fundamentals when selecting stocks
14/11/2016  Steer clear of fads, maintain a disciplined approach and focus on company fundamentals in building and maintaining your investment portfolio, says Anton Tagliaferro, investment director, Investors Mutual
How Trump could impact economic growth
10/11/2016  Slowdowns in trade and immigration could hold back the US, and infrastructure spending could boost GDP, but it's too early to make any major changes to our economic forecast, says Morningstar's Bob Johnson.
President Trump: What should you do?
10/11/2016  Donald Trump has beaten Hillary Clinton to become the 45th US president. What should investors do?