What’s happening?
‘Find the vaccine!’ That was the cry of 2020, and we are all thankful that we now seem to have a handful of them.
Some investors rushed to try to pick the pharmaceutical company which would be the first successful provider.
Well, few of us would have had the relevant knowledge to identify the ultimate winner – it is close to guessing.
Instrumental: Why not invest in the businesses that all those pharma companies will have to go to for all their scientific kit?
So why not invest in the businesses that all those pharma companies will have to go to for all their scientific kit? Very logical, and slightly easier to grasp.
Why does it matter?
As the past year has shown, there is going to be a continuous demand for scientific developments, medical breakthroughs and miracle vaccines, so no matter what the actual drug, vaccine or cure, research and development will be non-stop.
Here, then, is the simple premise: the demand for scientific instruments and related services is going to grow.
What should I do?
The good news is that we actually have a range of companies to choose from. The bad news is they have all performed very well in terms of their share price already, so new investors have missed out on gains.
The one I prefer has been EKF Diagnostics, which is listed on AIM and has had a good track record. This is reflected in the fact its shares are near an all-time high.
However, it is one of a number of similar companies which I feel may well attract the interest of larger corporates looking to buy in products and brands rather than have to develop them in-house. It doesn’t matter in fact if your stock isn’t the one taken over, as any such move would positively affect the whole sector.
Any suggestions?
Buying a stock is always risky. Although we might comprehend what the company does in broad terms, most of us will have little understanding of the technical detail.
So I like to look for history of success from the team over some years. EKF Diagnostics certainly has this, but the price is quite full.
I would prefer to keep it on the watch list and wait for a pullback, which will be coming in the not too distant future.
As an alternative there is a passive fund (ETF) covering the same sector but in the US. This is the SPDR S&P Health Care Equipment ETF which comprises 72 companies. That way, you get some diversification but you are still in the same sector with the same logic.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.
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