The easing of monetary policies should constitute an additional factor of support for the sector which is generally described as “bond-proxy”.
Over the past two years, the healthcare sector has been marked by a strong duality: Novo Nordisk and Eli Lilly have reached record valuations thanks to the success of their obesity-related franchises, while the rest of the sector has underperformed. -performed the market.
In the coming months, as the American economy enters a slowdown phase, the markets could give more importance to the profit dynamics of companies and their tangibility, thus favoring the health sector. If the sector offers a cohort of companies with heterogeneous profiles, they have in common the generation of stable profits over time thanks to long-term promising trends such as innovation, the aging of the population and the increase in chronic diseases.
The theme of treatments against obesity remains an excellent example of innovation and opportunity for the long term.
From a conjectural point of view, in addition to creating attraction for stocks offering visible earnings growth, the economic slowdown also opens the door to the easing of monetary policies across the world. This should constitute an additional support factor for the sector which is generally described as “bond-proxy”, that is to say whose stock price is negatively correlated to the evolution of interest rates.
Where to find value in healthcare?
Within our Carmignac Investissement international equity fund, we invest at both ends of the health spectrum: on the one hand, high-growth companies driven by innovation and on the other, lower-growth business models. but high visibility due to their essential roles within a complex value chain.
In this context, the theme of treatments against obesity remains an excellent example of innovation and opportunity for the long term. This market is estimated to reach $130 billion in revenue by the early 2030s (up from $13 billion in 2024), dominated by Novo Nordisk and Eli Lilly, while leaving room for competition from more small actors. Despite Novo Nordisk’s recent setbacks, due to competition and pricing pressures in the United States, long-term growth prospects should not be forgotten.
On the other side of the growth spectrum, we invest in other critical links in the healthcare value chain, such as drug distributors and health insurers in the United States. Despite their lower growth and margin profile, the importance of volumes and the stability of their margins enabled by the resilience of their activities make these companies interesting candidates for our portfolio construction.
Players in drug distribution to hospitals, pharmacies like McKesson Corporation in the United States, play a crucial role in the healthcare industry. McKesson offers visibility thanks to stable and strong revenues fueled by growing demand for pharmaceutical products and thus stands to benefit from growing volumes of anti-obesity drugs.
Health insurers in the United States, such as Centene, UnitedHealth, also offer strong visibility on their future growth due to their direct exposure to the increase in healthcare spending in the country. These companies offer their members, in exchange for a fixed fee, a range of medical services at reduced rates through a network of providers. These companies benefit from exclusively domestic exposure with low capital intensity, while generating significant cash flows and displaying low valuations (with a price-to-earnings ratio around 10x).
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