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Where are you finding opportunities in Health Care?
We've been finding opportunities in Health Care not in the typical names like pharmaceuticals or biotech, but more in line of testing companies, software companies, diagnostic companies, facilities. Pretty much a common theme amongst all those is that they help to bend the cost curve. So they're saving, not just providers but payers, money in the long term by avoiding hospital stays in some instances or having tests done that prevent procedures that may or may not be beneficial to the end user.
They're better values now; the market has not afforded these companies the multiples that they have in the past.
What has caused these stocks to become cheaper?
I think a lot of the names have come down as far as being expensive because of political pressure, and also just the general uncertainty about who the ultimate payor will be and what that system, if it changes, will look like in the future. And that has helped us a lot because the growth rates of these companies clearly haven't come down. So it's a rare opportunity for us. And point of fact, we haven't had this much Health Care I think in the last 15 years. So it's a great opportunity I think for us, especially over the next two or three years as that uncertainty dissipates.
How are you accounting for the potential political risk?
We can't do anything about the political risk. What we can do is judge whether or not these companies are going to provide a product, get revenues and remain profitable under any circumstance. So, that being said, I think there's a good chance or even better than a good chance, that those companies that can show that they're going to cut the cost curve or provide service at better rates are going to do well no matter who wins the election.
I think everybody looks at possible changes as being maybe more negative than they have to be. Things could actually get better as a result of some changes. What does that mean? It means that more people could become insured, or policies could better skew toward companies or services that provide things more cheaply. And that's really what we're looking at.
The thoughts and opinions expressed in the video are solely those of the persons speaking as of October 8, 2019 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.
The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.
This article first appeared on GuruFocus.