Healthcare has always been a strong return generating sector and has consistently beaten the broader stock market. According to data from the S&P 500 Health Care Index and the S&P 500 Index, the healthcare sector has outperformed from May 2001 to May 2021. with an annualized total return of 12.1%, which was higher than S&P 500's annualized total return of 7.4% during the twenty year period.
I have monitored Roche for a couple of years and admired its strong cashflow compounding and drug innovation prowess. In the last twelve months though, the share price underperformed on the back of the dismal outlook of European stocks and Roche’s lack of growth as it faced declining revenue from the fallout of COVID-19 related sales. As such, share price corrected from CHF400 to CHF280 today, a 30% drawdown. This presents an interesting opportunity to buy the stock today.
At USD320bn, Roche was the largest European pharmaceutical company by market cap when Visual Capitalist charted the above. Today, it is #2 behind Novo Nordisk (market cap USD360bn) with its market cap USD260bn as of May 2023. That said, Roche is consistently ranked top 5 globally in the pharmaceutical space either by revenue or earnings. As per previous ideas, we shall discuss its investment thesis, moats, risks and valuation in detail today.
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