Healthcare stocks were hit hard in the third quarter after leading the S&P 500 for the first half of the year. Alessandro Valentini, portfolio manager for the Causeway International Value fund (CIVVX), said the environment will change once again for the better as the market realizes how well big pharma is returning and allocating capital. ‘We’ve seen internal rate of returns for R&D expenditures go up in the last five years and we think they are going to continue going up,’ said Valentini. ‘We’ve seen companies take a more thoughtful approach to M&A.’ The Causeway Global Value fund is down almost 3% so far this year, according to fund-tracker Morningstar. The trailing twelve month yield is 1.9%. Valentini is bullish Johnson & Johnson (JNJ), which has seen its shares fall slightly over 2% so far this year. He said the company is performing well despite the currency headwinds that hampered it in the third quarter. ‘We see a ton of value in J&J in terms of its ability to deliver on its pipeline, as well as its ability to improve margins because of its mix of business,’ said Valentini. Valentini is also positive on Eli Lilly (LLY), which has seen its stock rise over 18% thus far in 2015, even though the company has been severely cutting costs. ‘Management has really turned around the story and they have been able to deliver on the pipeline, but they are also bringing their margins to the level of the rest of the pharma industry,’ said Valentini.
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