- Morgan Stanley recommended 10 stocks that they think will perform well as the US faces its next presidential election and as the world recovers from the coronavirus pandemic.
- Analysts recommended six pharmaceutical stocks — despite political rhetoric bashing drug prices.
- UnitedHealth Group is expected to do well regardless of whether President Donald Trump or former Vice President Joe Biden wins the election.
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Two big questions are looming in the coming months: Who will win the US presidential election? And how quickly will the world will emerge from the coronavirus pandemic?
Republican President Donald Trump is campaigning for a second term against his Democratic opponent, Joe Biden. Aside from the coronavirus pandemic, among the biggest uncertainties for healthcare companies are the future of the Affordable Care Act — including whether lawmakers will move to expand government health insurance — and how politicians will crack down on drug prices.
“Healthcare is one of the sectors that could be most impacted by policy coming out of the upcoming election,” Morgan Stanley analysts wrote in a note published in September.
Read more: Meet the 24 most powerful people advising Trump on healthcare as the president vies for a second term
The analysts predict that, in the months ahead, the US will see a faster reopening of the economy as people adapt to new ways of living and of buying the products they need. Even though epidemiologists are projecting a surge of new coronavirus cases in the fall, Morgan Stanley analysts wrote that the shut-downs couldn’t go on forever because they carried too many economic consequences, “forcing adaptation to a new normal.”
Also aiding in the recovery, analysts said, were federal stimulus programs. The US government has already provided about $3 trillion in relief, and Morgan Stanley thinks the next package will add up to $1.5 trillion.
It’s not clear when that will happen. Stimulus talks have hit a dead-end on Capitol Hill, with other analysts predicting no movement until after the election.
Given the multiple uncertainties, here are the 10 healthcare stocks that Morgan Stanley is recommending to investors:
Read more: RBC names 7 healthcare stocks to buy now to profit from a Biden victory — and 3 that could surge even if Trump wins
(1) 10x Genomics
10x Genomics (TXG) is a life-sciences technology startup that sells tools to help researchers study the molecular workings of cells so they can better understand treatments and diseases.
The company’s Visium product gives researchers a map of where gene activity is happening within tissue. And in July, 10x Genomics launched a new version of its Chromium product, which studies immunology, oncology, autoimmunity, inflammation, and infectious diseases.
Morgan Stanley analysts wrote that both products were affordable ways to help researchers understand differences in DNA, RNA, and proteins.
“Both platforms have generated robust customer traction post launch, and come with a multi-year runway for growth,” they wrote.
Biogen (BIIG) is a pharmaceutical company best known for its treatments for multiple sclerosis and hemophilia.
But it’s aducanumab, Biogen’s treatment under development for Alzheimer’s disease, that Morgan Stanley analysts have their eyes on. The analysts predict that the market will price in aducanumab at 50% probability of success ahead of a Food and Drug Administration advisory committee meeting that’s expected to occur in early 2021.
Denali (DNLI) is a biopharmaceutical company that’s developing products for neurodegenerative diseases that are engineered to cross the blood-brain barrier.
Morgan Stanley analysts think the company’s programs toward treatments for Parkinson’s disease and Hunter’s syndrome will move ahead. Biogen announced August 6 that it would be collaborating with Denali on Parkinson’s therapies.
(4) Elanco Animal Health
Elanco Animal Health (ELAN) is a pharmaceutical company that makes medicines for pets and livestock. In August, the company completed its purchase of Bayer’s animal health business.
“We expect Elanco to execute well on the Bayer acquisition, generate significant cost savings, de-lever the balance sheet, and introduce important pipeline products,” Morgan Stanley wrote.
(5) Eli Lilly
Eli Lilly (LLY) is a pharmaceutical company that’s the largest maker of psychiatric medications.
Looking ahead, Morgan Stanley sees growth prospects in Eli Lilly’s heart drug tirzepatide, which it believes could become a leading candidate to treat obesity. They also see enthusiasm around Eli Lilly drugs to treat Alzheimer’s.
“Among Global Pharma, Lilly ranks among the fastest growers and has the least number of patent expirations over the next five years,” Morgan Stanley wrote.
(6) iRhythm Technologies
iRhythm Technologies (IRTC) makes medical devices that measure patients’ heart rate, shortness of breath, and fatigue.
Morgan Stanley thinks iRhythm’s Zio has the potential to disrupt the EKG market because it rapidly issues diagnosis and does so in a more cost-effective way than other products currently on the market.
“We have been vocal about the iRhythm opportunity since initiation,” the analysts wrote.
(7) UnitedHealth Group
UnitedHealth Group (UNH) is the largest health insurance company in the US. It also has a pharmacy benefits manager, a medical-care business, and a technology-and-consulting arm.
Morgan Stanley called UnitedHealth Group a “name we like for the next 12 months,” predicting it would do well regardless of whether Trump or Biden wins the election, or which party controls the Senate.
If Biden does win, Morgan Stanley predicts that an expansion of government healthcare would also benefit health insurers that operate Medicare Advantage plans, which cover 22 million seniors. Should the US enact a new “public option” — giving customers the option to buy into a government plan — then Morgan Stanley thinks UnitedHealth Group has a diverse enough portfolio to withstand the change.
Cochlear (COH.AX) is a large producer of hearing aids that’s based in Australia.
Morgan Stanley analysts called Cochlear a “market leader in a growing and under-penetrated market” and said that business would pick back up in 2021 as surgeries restart.
Novartis (NOVN.S) is a Swiss pharmaceutical company that makes drugs for osteoporosis, high blood pressure, and multiple other disorders.
Morgan Stanley put it on its list of recommended stocks because it said it had two blockbuster biosimilar launches expected by 2025 alongside data for its drugs to treat lung cancer and prostate cancer.
“Novartis looks well placed entering 2021, supported by broad diversification and relatively low exposure to US post-election policy risks, and we argue that greater pipeline recognition should drive a positive re-rating in the equity story,” Morgan Stanley wrote.
(10) Sun Pharmaceuticals
Sun Pharmaceuticals (SUN.NS) is an Indian pharmaceutical company that sells drug ingredients.
Morgan Stanley said it expected Sun Pharma to benefit from positive operating leverage over the next year to year and a half “as high up-front costs pertaining to specialty and low manufacturing utilization gets absorbed with sales growth.”
But analysts also cautioned that an investigation into the company’s alleged price fixing and generic exclusivity court case “are key risks to our call.”