With the FTSE 100 at a record high, it’s become a bit trickier to spot undervalued UK stocks. Therefore, it might be a good idea to look at unloved sectors, as many shares in these will be down by default. Babies being thrown out with the bath water, as it were.
Some unloved areas right now include renewable energy, small-caps, REITs, housebuilders, and retail stocks. There will undoubtedly be lucrative opportunities hiding in plain sight in these spaces.
For me though, one sector that looks undervalued from a long-term perspective is healthcare. This area’s been shunned for some time, due to uncertainty around tariffs on pharmaceutical imports into the US, as well as moves by President Trump to lower drug prices.
Consequently, valuations of big pharma firms are very low compared to historic norms. And I think this area could be a fruitful hunting ground for long-term investors.
A UK trust
Rather than picking individual healthcare stocks though, I think a smarter (and safer) way to consider investing would be through an investment trust or exchange-traded fund (ETF).
One I like is Polar Capital Global Healthcare Trust (LSE:PCGH). Established in 2007, this trust invests in what it sees as the best opportunities globally, across all healthcare subsectors. These range from innovative small-cap biotech stocks to global pharma giants.
The top two stocks are Eli Lilly and AstraZeneca, which are respectively enjoying solid growth from weight-loss drugs (particularly Mounjaro) and innovative cancer treatments. Both are world-class companies with strong long-term growth prospects.
Beyond pharma, the trust also has a lot of exposure to businesses supplying healthcare equipment and life sciences tools. Top names here include Thermo Fisher Scientific, Intuitive Surgical, and insulin delivery innovator Insulet.
While the sector’s struggled in recent years, Polar Capital Global Healthcare Trust’s done better. Over the last three years, it’s up about 23% to 390p, easily outperforming the wider healthcare market.
Uncertainty persists
As mentioned, there’s still uncertainty around tariffs in the US, though many large companies have announced significant investments in US manufacturing capacity in recent months.
As for US drug prices, this issue remains a risk because the details are still being ironed out. Reforms could result in lower profits for some drugmakers.
Two big trends
The pace of innovation in healthcare continues to accelerate, not just in respect of novel therapies, but also new devices are opening up new markets and technological advances are increasing efficiency… with valuations attractive, it is not unreasonable for healthcare investors to look ahead with a high degree of optimism.
Polar Capital Global Healthcare Trust.
Taking a longer-term view, I’m bullish on this sector for two reasons. First, the global population’s living longer. So this ageing factor should naturally drive more demand for healthcare provision.
Meanwhile, artificial intelligence (AI) is advancing rapidly. As the technology improves, it has the ability to massively accelerate and improve the drug-discovery process, potentially fattening profit margins across the whole industry.
Indeed, Nvidia CEO Jensen Huang has repeatedly said he thinks AI’s biggest impact will be in healthcare and drug discovery. Given his incredible record for envisioning future trends, I wouldn’t bet against this.
For investors, the good news is that none of this potential’s priced in today. Therefore, I reckon this UK healthcare trust’s worth examining.
