Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group

FOCUS: U.S. large cap health care stocks


Macro uncertainty remains high driven by persistent inflation, supply chain congestion, heightened geopolitical risks and concerns about significantly higher U.S. interest rates.

Rising rates are impacting bond prices at a time when they should act as a defence in portfolios while high inflation is impacting real income from our investments. While we are seeing some green shoots that inflation is peaking, leading economic indicators are still muted, and growth is continuing to slow, albeit it is still positive for broader U.S. markets. It’s no surprise that investor sentiment indicators, outside of the GFC, are at 30-year lows. This is balanced against the broader market having had its valuation multiples recalibrated at a rapid pace, despite earnings expectations that are higher than at the start of the year. 

With that macro backdrop, we believe investors should look to large capitalization companies with the proven ability to navigate across economic cycles. Specifically, companies that have relative visibility into their businesses, have low commodity cost exposure and relatively defensive in nature but can still participate in a multiple rerating should some of the macro risks continue to show more concrete trends of abating.  Many large capitalization health care companies meet these criteria and have relative visibility at a time when it is needed.  At the same time, health care has strong long-term secular tailwinds driven by aging populations, technological innovation, and growth from developing markets.

The shorter-term visibility into the underlying businesses, attractive valuations, improved investor sentiment and political climate, coupled with the long-term structurally positive macro drivers, lay the foundation for our positive outlook for the sector.

  • Sign up for the Market Call Top Picks newsletter at
  • Listen to the Market Call podcast on iHeart, or wherever you get your podcasts



Paul MacDonald's Top Picks

Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group, discusses his top picks: HCA Healthcare, Anthem, and Merck & Co.

HCA Healthcare (HCA NYSE)

First time top pick and not a consensus long. HCA, formerly Hospital Corporation of America, is the largest for-profit full-service hospital operator in the U.S with nearly 200 hospitals representing some 50,000 acute care beds, 300+ ambulatory outpatient and urgent care centres along with a range of rehabilitation, diagnostic and surgery centres across 20 states. This company has consistently delivered strong results and the recent quarter was a rare miss driven by shorter term labour inflation due to omicron. This resulted in a reduction in 2022 guidance and the stock was aggressively sold off and resulted in what we believe is an over reaction as early data suggest those labour costs are a one off event and that the valuation will rerate as we see that validated in coming quarters.

Anthem (ANTM NYSE)

Anthem is a leading health insurer in the U.S in 14 states as a licensee of Blue Cross through its Blue Cross & Blue Shield Association. In addition to leading brand recognition, Anthem stands to benefit from significant positive macro tailwinds that are expected to occur over the medium term. It has diversified operations and has been successfully building out its pharmacy benefits manager, IngenioRX. The company has a diversified client base with a mix of commercial and government plans. We continue to see them as a core value investment in an area that is core to the U.S. health care system. We continue to hold approximately 10 per cent weight towards the sub-sector, split between United Health and Anthem Inc.

Merck & Co (MRK NYSE)

Merck & Co is a large cap diversified drug manufacturing company. It has a proven ability to generate consistent returns and has offset patent declines due to its deep pipeline of new drugs from acquisitions and organic research and development. They are diversified across multiple areas of treatment ranging from diabetes, vaccines, animal health and oncology. Of note is that Merck has continued to generate positive developments from Keytruda, its leading immuno-oncology therapy, with the recent data and competitors failed trials validating its market leadership in immunotherapies.




PAST PICKS October 20, 2020

Paul MacDonald's Past Picks

Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group, discusses his past picks: UnitedHealth Group, Bristol-Myers, and Abbvie.

UnitedHealth Group (UNH NYSE)

  • Then: $323.41
  • Now: $483.51
  • Return: 50%
  • Total Return: 52%

Bristol-Myers Squibb (BMY NYSE)

  • Then: $60.64
  • Now: $75.84
  • Return: 25%
  • Total Return: 30%

Abbvie (ABBV NYSE)

  • Then: $84.25
  • Now: $151.94
  • Return: 80%
  • Total Return: 90%

Total Return Average: 57%