Paul MacDonald, chief investment officer and portfolio manager, Harvest Portfolios Group

FOCUS: U.S. large cap health-care stocks

MARKET OUTLOOK:

We believe health care can be a market leader in this cycle. While the macro environment appears to be stabilizing, leading economic indicators are still muted, and growth is continuing to slow. There is also a very high degree of uncertainty and several unknown variables that could pivot the recovery very quickly in either direction. Balanced against the broader market’s recalibrated valuation multiples, investors are still navigating a challenging environment.

With that macro backdrop, we believe investors should look to large capitalization companies with the proven ability to navigate across economic cycles. Specifically, companies that have relative visibility into their businesses, relatively defensive characteristics, and a visible growth component that can manifest as macro risks abate. Many large capitalization health care companies meet these criteria. Given the superior good status for many health care products, these companies have relative visibility at a time when it is needed. At the same time, health care has strong long-term secular tailwinds driven by aging populations, technological innovation, and growth from developing markets.

Shorter-term visibility into underlying businesses, attractive valuations, improved investor sentiment and political climate, coupled with long-term structurally positive macro drivers, justify our positive outlook for the sector. 

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TOP PICKS

Stryker (SYK NYSE)

We initiated a position in January in 2017.

Stryker is a high-quality large cap medtech company that has a proven history of execution. They have one of the fastest growth profiles in the large-cap medtech universe, solid balance sheet flexibility and a diversified business. There continues to be positive sentiment towards robotic surgical equipment, an area where Stryker’s Mako system is an industry pioneer and leader.   Elective surgeries have normalized following the pandemic and growth has resumed.

Abbott Laboratories (ABT NYSE)

We reinitiated a position in Abbott in July 2019. 

Abbott is a large capitalization diversified medical equipment company.  Through strong research and development productivity driving organic growth and successfully implementing large scale M&A, the company has become a dominant market leader in diagnostic equipment such as hospital laboratory equipment and across medical products specifically in cardiovascular and diabetes care.  Innovation within cardiovascular products and continuous glucose monitoring products such as the Freestyle Libre, drive visible growth through 2030.

Elevance Health (ELV NYSE)

We reinitiated a position in Elevance in January 2017. 

Formally known as Anthem, Elevance 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. It has diversified operations and have been successfully building out their pharmacy benefits manager.  The company has a diversified client base with a mix of commercial and government plans. Recent headwinds in medical costs we believe are temporary and expect to normalize in Q3.  We continue to hold approximately 10 per cent weight towards the sub-sector, split between United Health and Elevance.

Past Picks: February 3, 2022

UnitedHealth Group (UNH NYSE)

• Then: US$488.77
• Now: US$498.56
• Return: 2%
• Total Return: 4%

Zoetis (ZTS NYSE)

• Then: US$200.92
• Now: US$184.86
• Return: -8%
• Total Return: -7%

Pfizer (PFE NYSE)

• Then: US$53.38
• Now: US$38.65
• Return: -28%
• Total Return: -25%