Chart of the week
Despite being in the news since March 2020, the pharmaceutical sector is not one of the major beneficiaries of the health crisis. Over the past two years, the US pharmaceutical equities index (S&P 500 Pharmaceuticals Industry GICS Level 3 Index) has underperformed the market average (S&P 500 Net Total Return Index). This underperformance is even clearer when viewed over a longer period, and price-to-earnings ratios have actually fallen compared to all other sectors.
Since the start of the health crisis, only a few biotech and laboratory stocks have been on an uptrend. These include the two companies involved in the development of the mRNA Covid vaccines, and companies whose products are used directly in vaccine manufacture.
Paradoxically, the emergence of these new technologies has cast a shadow over traditional pharmaceuticals, which have lagged both in Europe and the US. In addition, US healthcare policy reform, although ultimately harmless, has been dampening the outlook for leading global players.
Despite this, the pharmaceutical sector has a lot going for it. Innovation remains strong, with the development of effective new treatments for autoimmune diseases, rare diseases, cancer, infectious diseases and cardiovascular diseases, to name but them. Similarly, growth and visibility in the short, medium and long term remain high. In fact, the sector’s underperformance in the past two years makes it an attractive option at current valuation levels.
The following opinion was written on November 25, 2021 and is susceptible of changing.
*Sources : Bloomberg, and calculation from Lazard Frères Gestion
As of : November 25, 2021
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