AppId is over the quota
AppId is over the quota
By Atul Prakash
LONDON | Wed Sep 21, 2011 11:57am BST
LONDON (Reuters) - Pharmaceutical stocks offer a powerful investment case because of the sector's free cash generation, exposure to emerging markets and predictable demand trends, a senior fund manager at UK-based Bedlam Asset Management said.
Felicity Smith, who co-manages the Bedlam Global Income, Bedlam UK and Bedlam European funds with Richard Greenwood, said the outlook for drugmakers was still improving.
"Demand in emerging markets is growing and will help to offset pressure from patent expiry in the United States. Margins remain robust, capital intensity is low and companies in the sector benefit from many opportunities for self help, such as cost-cutting and more focused research," she said.
Smith has placed her bets on companies such as Swiss-based Novartis AG (NOVN.VX), saying it offered a broad product base and had one of the best research pipelines.
"Novartis generates high sales in emerging markets and benefits from good generic and consumer health divisions," she told Reuters in an interview, adding she also liked French group Sanofi SA (SASY.PA) on the grounds it had one of the highest exposures to emerging markets and had scope to cut costs.
Smith favoured U.S. biotech company Celgene Corp (CELG.O), for its cancer portfolio, seen as well protected from generic competition, and added that Pfizer Inc (PFE.N) had an interesting restructuring story, with the scope to divest non-core activities.
Bedlam, which manages a total of $703 million, trimmed its exposure to the agricultural chemicals sector earlier in the summer as shares reached fair value, but used market weakness in early August to buy back those stocks, Smith said.
BUY TERRITORY
"Our methodology tends to mean that we raise cash levels as markets approach unsustainably high levels and then reinvest as market falls bring more stocks into buy territory. This is what has happened in the last three months," Smith said.
Bedlam added to its holdings Norway's Yara International ASA (YAR.OL), the world's largest nitrogen fertiliser maker, and the world's largest agrochemicals company Syngenta AG (SYNN.VX), which Smith said had lately been indiscriminately sold down.
Smith, whose Bedlam Global Income Fund for instance was down 8.5 percent in the year through mid-September against an 11.5 percent drop in MSCI's all-country world index .MIWD00000PUS, said it was still too early for large-scale investment in the banking sector.
"While banks in the United States and the UK are less exposed to peripheral Europe, are less dependent on wholesale funding and have done much to repair their balance sheets, they will still suffer in a long period of low economic growth.
"Within the euro zone, most banks remain under-capitalised and over-dependent on wholesale funding, even without the gaping holes that will be knocked into their balance sheets as and when they are forced to fully write down their exposure to the sovereign debts of Greece, Portugal, Spain and Italy."
Smith saw a plenty of economic headwinds and said most governments in the Group of 20 were struggling with unsustainable debt levels -- efforts to deal with which were likely to depress global growth for some time to come.
(Editing by David Holmes)
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