The Outlook: Healthcare Sector

By: Samanada Tulloch, Senior Portfolio Advisor Posted:

The emergence of the COVID-19 pandemic has transformed the world, placing fiscal and monetary policies in a tailspin. The pandemic placed the healthcare sector under the microscope, which has showcased its resilience and ability to rapidly innovate and pivot via the creation of vaccines and the production of hospital supplies. COVID-19 has also altered the methodology of medical services via the rollout of telehealth and in-home health services, creating new sub-sectors and revenue streams.

From an investment perspective, the outlook for this sector is positive.

For context, the global healthcare industry was worth US$8.45T in 2018 and is estimated to hit US$10T by 2022. As is, U.S. healthcare spending sits at approximately US$10,224.00 per capita. On the local front, our healthcare sector expenditure as a percentage of GDP was 6.06% in 2019 and is expected to increase over the next three years given the onset of the Covid-19 pandemic. This is also compounded with an aging population, a similar trend is forecasted for the United States.

Currently, the sector is undervalued in comparison to other sectors, which presents an upside opportunity for investors. These companies typically have a positive trajectory attributed to, innovation, driven by research and development, and the critical role the sector plays in the economy.

Some companies within this sector to watch locally are Indies Pharma and Fontana. Indies Pharma is a local distributor and producer of affordable pharmaceutical products. The pandemic has had a positive effect on their profitability and overall performance. Indies Pharma 2020 full-year performance saw their net profit leap from J$130M to J$207M. Meanwhile, their 2021 first quarter saw net profit grow 20% over the prior year. On the other hand, Fontana remains a household name in Jamaica, with products ranging from pharmaceutical to household items. Since listing in January 2019, Fontana has continued its strong growth trajectory by increasing revenue through organic initiatives. Fontana’s 2020 nine-month net profit stood at J$234M contrasting the 2021 nine-month result of J$366M. For perspective, Fontana’s full-year 2020 net profit was J$276M.

Internationally, investors can consider investing in companies such as United Health Group, Pfizer  or via  Exchange Trade Funds (ETF) such as the Healthcare Select Sector SPDR Fund (XLV)that provides exposure to 63 listed companies within the healthcare sector.

The current pandemic, coupled with the growth in the demand for health-related products and services are positive indicators for the sector. This along with improved disposable income combined with an aging population presents a perfect opportunity for investors with a medium to long-term outlook.