Tekla Healthcare: 50 Big Yield Healthcare Stocks, These 3 to Consider (NYSE:HQH) | Jobs Vox

Healthcare is a diverse field. And recent performance has been extensive (see data below). This is creating select, very attractive large-cap opportunities, from private pharmaceutical stocks, healthcare-focused CEFs and even “healthcare” REITs. a few. In this report, we review three particularly exciting large-scale healthcare opportunities. We start with the exclusive Tekla Healthcare Investors Fund (NYSE:HQH).

(JNJ) (PFE) (ABBV) (MRK) (OTCQX:RHHBY) (AZN) (NVS) (ABT)

(Fine) (VTR) (Pick) (HR) (MPW) (OHI)

(THW) (THQ) (HQL) (HQH) (GRX) (BME)

You may recognize at least a few of your favorites in the charts above. Depending on the type of investment, as well as year-to-date performance and current dividends, you’ll see a variety of helpful (hopefully) data points.

With that background in place, let’s get into some unique possibilities.

Tekla Healthcare Investors (HQH), Yield: 8.3%

Based in Boston, Tekla offers four closed-end funds focused primarily on the healthcare sector. Tekla Healthcare Investors Fund is attractive for several reasons. It gives startups exposure to a variety of healthcare sector companies (it recently had about 150 holdings, including stocks such as Amgen ( AMGN ), Gilead ( GILD ) and UnitedHealth Group ( UNH ), thereby providing investors with diversification into the fast-moving healthcare sector.

HQH currently trades at a ~10% discount to the value of the underlying holdings, or net asset value (“NAV”), a wide discount to historical standards (the 1-year z-score was recently -1.5, which is arguably a good sign ). Large discounts and premiums to NAV are a unique feature of CEFs (compared to other mutual funds and exchanges) and can create unique risks and opportunities (we generally prefer to buy attractive CEFs at large discounts).

Perhaps part of the reason this fund is currently trading at a wide discount is that the recent cut in its quarterly dividend (technically the spread) has investors hitting the sell button.

As a policy, the fund has a managed distribution policy:

The Fund has a managed distribution policy (the Policy) which allows the Fund to make a quarterly distribution of 2% of the Fund’s net assets to shareholders of record. The Fund intends to use net capital gains when making quarterly distributions whenever possible. However, the implementation of the policy may result in the return of capital to shareholders if the amount of the distribution is derived from the fund’s net investment income and realized capital gains.

Another important consideration is the source of HQH emissions. As you can imagine, not all distributions come from income from the original holdings, but instead some may come from capital gains and/or returns of capital. A portion of capital gains over time is expected, and a portion of return on capital (“ROC”) is also acceptable but must be monitored. Specifically, the ROC can reduce your cost basis by generating unexpected capital gains tax if you sell/sell your shares. As shown in the table below, the latest source of distribution has been mixed, but in our view, it is acceptable in the current market situation.

Management fees are another metric that should be rationally tracked. The management fee on HQH was recently 0.99% (reasonable) and 0.20% on other expenses. This fund is currently using almost 0% leverage (or borrowed money), which we see as a good thing (leveraging can increase returns but increases risks when the market is volatile – like this year). Leverage is expensive (especially leveraged) and can add to a fund’s overall expense ratio. The total expense ratio on HQH was recently 1.19%, which we consider acceptable for an actively managed CEF (see the fund’s management team here).

Overall, if you’re an income-oriented investor, we see HQH as an attractive exposure for a large discount (to NAV), very low leverage (latest 0.85%), reasonable expense ratio (latest 1.19%). Healthcare sector, and a large distribution product (paid quarterly). And if you like CEF in general, we recently shared more CEF ideas here.

Gilead Sciences (GILD), 2023 bonds, yield: 5.0%.

Biotech company Gilead offers a compelling yield on its common stock (currently around 3.4%), but given those stocks’ recent strong performance and healthy valuations, we like the bonds more than stocks. In particular, the September 2023 bonds are rated investment grade and offer an annual yield of 5.0% (as you can see in the chart below, this impressive yield was close to 0.0% a year ago), with interest rates rising significantly.

In particular, since the bonds trade below par, they receive some price appreciation in addition to the coupon payment. Gilead is a very profitable business (thanks to its HIV drugs) but lacks a pipeline, and we prefer these bonds that offer attractive yields and mature in less than a year. Additionally, if you are uncomfortable with the recent volatility in the stock market, these income-generating bonds are very attractive. We recently shared various additional booking opportunities here.

Baxter International (BAX), yield: 2.3%.

Don’t be fooled by Baxter’s relatively low yield, it has significant share price appreciation potential and long-term dividend strength. Baxter is an attractive healthcare equipment company, but its shares have fallen sharply this year as the pandemic recovery has been slower than expected. In particular, many patients are rescheduling surgeries that were previously delayed due to health care staffing issues, inflation and pandemic concerns. For perspective, see how health care job vacancies have held up as the overall US job situation has recovered.

Baxter will recover and continue to grow, but conditions will remain slow in the near term. For example, Baxter reported third-quarter results in-line with expectations, but lowered full-year guidance due to rising SG&A costs (post-pandemic inflation). And this recent slowdown has created an attractive long-term contrarian opportunity as Baxter remains the industry leader in most products and trades at an attractive earnings multiple (13.9x forward p/e). If you are a disciplined long-term investor, Baxter is worth considering.

Summary:

The healthcare sector is diverse, but currently offers a range of attractive opportunities, as outlined in this report. And if you like the information and ideas in this report, we’re sharing even more unique and attractive opportunities in this new report: Top 10 High-Score Healthcare Opportunities.

And while big-production can be very challenging (especially given the current market conditions), it’s important to only choose opportunities that fit your personal situation and goals. Despite short-term market volatility, we believe that ethical, goal-oriented long-term investing remains a winning strategy.

Editor’s Note: This article discusses one or more securities that are not traded on a major US exchange. Please be aware of the risks associated with these stocks.