Thu, 12 Dec 2013
Many developed-country health-care firms have deep roots in emerging markets and can be a good way to gain exposure, says Morningstar's Damien Conover.
Emma Wall: I'm Emma Wall. And here with me today is Morningstar analyst, Damien Conover. Hello, Damien.
Damien Conover: Hi, Emma. Thanks for having me.
Wall: Today, we are going to talk about emerging-markets revenues, but through developed-markets-listed stocks because emerging markets have not done very well over the last couple of years, have they, whereas the U.S. stock market, is up 30% so far this year?
Conover: I think that's a great way to get exposure to emerging markets, to go through some of these firms that have much more exposure to the developed markets, but yet also have a large exposure to the emerging markets which is growing rapidly. I think it's important to have exposure to some of those geographies.
Wall: And what's your first stock today?
Conover: The first one I talk about is Sanofi. Sanofi has one of the leading exposures of the big pharmaceutical firms to emerging markets. It's very well entrenched in vaccines and diabetes [treatments]. Those are two therapeutic areas that emerging markets really want to have exposure to. So we think the stock is undervalued, and a big piece of the reason why we think it's undervalued is the exposure to the emerging markets.
Wall: And what emerging markets is it exposed to?
Conover: It's really across the board. It's Brazil, it's Russia, it's India, but most importantly it's China. China is, in our view, the most important emerging market, and Sanofi has very strong entrenchment there which should bode well for the stock.
Wall: And what's your second stock?
Conover: The next stock to talk about is Teva. Teva is a stock that has a lot of risk overhang with a patent loss on Copaxone, one of its key products. But one of the strategies Teva is employing to get beyond the Copaxone patent loss is its exposure to emerging markets in the branded generics market, which we believe Teva is one of the best firms positioned to take advantage of the growing demand for branded generics in the emerging markets.
Wall: So this patent cliff, that is not something to be concerned about?
Conover: It is to be concerned about. But we think it's factored into the stock's valuations. The stock is trading very, very low on a P/E basis, and we think investors are overly focused on the patent loss, but not thinking about some of the strategies we think will do quite well for Teva over a longer term, including the exposure to the emerging markets.
Wall: And what about in the U.K., is there a stock that displays these characteristics?
Conover: Yes. The stock that we like, that's more U.K.-based and also has good exposure to the emerging markets is GlaxoSmithKline. They've run into some challenges in China; we think they'll get through that. But it's not just China that they have exposure to but a lot of the other really important emerging markets. GlaxoSmithKline is well entrenched in the respiratory disease franchise, and we expect that to bode very, very well for them in the emerging markets.
Wall: Also pays quite a nice dividend, isn't it?
Conover: Yes, a great dividend, a secure dividend, and a nice way to get some return in a market environment where it's hard to get those yields.
Wall: Thank you very much, Damien
Conover: Thanks for having me, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.