Are we really almost at the tail end of nearly a decade of economic growth? Yes we are. Although there have been a few short-lived downturns over the past 10 years, most economies have enjoyed stable growth since the recession of 2008-09.
But I have been increasingly noticing the economically dreaded R-word in the media. While analysts are divided as to whether many global economies, including the UK, could be headed towards a recession in the near future, investors could benefit from thinking about how to recession-proof their portfolios.
Here are several healthcare shares that may be appropriate for many long-term portfolios in 2020.
A resilient industry
By healthcare, I mean pharmaceutical companies, as well as medical device manufacturers and those that operate healthcare facilities.
Healthcare companies are considered to be defensive and their shares might serve investors well in case of a recession. A defensive company usually has a constant demand for its products or services and isn’t typically correlated to the rest of the business cycle.
Why is healthcare so resilient? We all get sick occasionally, or have friends and relatives who may need treatment for chronic illness. Moreover, according to the Office for National Statistics, the UK population is getting older with “18% aged 65 and over and 2.4% aged 85 and over.” Hence the need for more healthcare facilities and drugs.
The sector also benefits from technological advances as innovation, ranging from medical equipment technology to information technology, increasingly plays a crucial role in sustaining health.
FTSE 100 shares
Britain’s leading stock index, the FTSE 100, offers several possibilities for investors to consider. Two stocks that may be worthy of your attention would be the FTSE 100 pharma giants AstraZeneca and GlaxoSmithKline.
When major indices or economies come under stress, more than ever I look for companies that offer fundamental value and growth potential, as well as proven stability. Overall, both shares fit the criteria well. With respective dividend yields of 2.9% and 4.5%, they are likely to appeal to income investors too.
Generic drug specialist Hikma Pharmaceuticals, Abu Dhabi-based healthcare centre operator NMC Health and medical technology company Smith & Nephew are the three other stocks I’d consider in the New Year.
Most FTSE 100 companies generate a large proportion of their revenues from outside the UK, especially the US and emerging markets, meaning that they should be well insulated from any potential Brexit-related economic downturn after the general election.
FTSE 250 and AIM stocks
Outside the FTSE 100, investors would be able to find several companies that are listed in the FTSE 250 and AIM, the London Stock Exchange’s market for smaller companies.
One such share is Mediclinic International, a private healthcare group with global operations. It also holds a 30% interest in UK specialist Spire Healthcare Group.
Another company would be UDG Healthcare, which provides non-core but essential services such as packaging, marketing and communications for global drug makers.
My next stock is AIM-listed Abcam that sells research-grade antibodies, biological reagents and tools to pharma and biotech laboratories that conduct scientific experiments.
Finally, if you want to look beyond our borders, then you may want to do due diligence on the Worldwide Healthcare Trust. It is invested around the world in healthcare stocks. Year-to-date it is up over 25% and has a dividend yield of 0.89%. Its annual expense ratio stands at 0.9%.
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tezcang owns GlaxoSmithKline covered calls (December 13 expiry) on GSK ADR shares listed on NYSE. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and NMC Health. The Motley Fool UK has recommended Abcam, AstraZeneca, Hikma Pharmaceuticals, and UDG Healthcare. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.