Rebecca Jones asks Tom Walker, manager of Martin Currie Global Portfolio, about the stocks he has been buying, holding and selling in his global growth trust.
BUY: MYLAN (NASDAQ:MYL)
Walker bought into US drug manufacturer Mylan in March as part of his wider play on global healthcare providers. Like many other investors, Walker believes that ageing populations in the developed world combined with the rising cost of healthcare will continue to provide unique opportunities in the pharmaceuticals sector.
Mylan is one of a rising breed of drug manufacturers that provide low-cost 'generic' drugs, or reproductions of those developed by larger pharmaceutical firms that are no longer patent-protected.
Best known for the Epipen, an auto adrenaline injector that treats moderate to severe allergic reactions, Mylan is one of the biggest generic drug manufacturers (GDMs) in the US, with a market capitalisation exceeding $33 billion (£22 billion).
Despite its scale and past successes, however, Walker says that Mylan is currently trading on a price/earnings (p/e) ratio of just 13 times compared to a wider US market average of around 20 times, with good potential for earnings growth.
'GDMs often do trade at a discount to the market, but we think that Mylan could produce 10 per cent annual earnings growth over the next five years, and if it does then the potential for a sharp re-rating is very great,' says Walker.
The firm currently occupies 1.5 per cent of Walker's 50-stock portfolio and is already paying dividends; as at 9 April Mylan is trading at $71.50 per share, close to $10 per share above the price at which he bought in less than a month ago.
HOLD: CVS HEALTH (NYSE:CVS)
US pharmacy and convenience store chain CVS Health has been a sporadic constituent of the Martin Currie Global Portfolio trust since its inception in 1999.
During that time the company has undergone some fairly radical changes, chief among them its merger with prescription service provider Caremark in 2007.
The deal created CVS Caremark, the firm's pharmacy benefit management (PBM) arm, which provides prescription benefit management services to over 2,000 health plans and now accounts for around a third of CVS's total operations.
Walker describes the deal as initially 'shaky', but he believes US healthcare reforms will lead to strong growth in this part of the business.
On the retail convenience store side, the manager claims that although CVS's decision to stop selling tobacco and rebrand as CVS Health at the end of last year created a temporary dip in sales, trading seems to be picking up, aided by the US's continuing economic recovery.
'CVS is a company that has good visibility - it's almost a staple in the US. It is also growing its top line at around 5 per cent a year, with earnings per share up around 10 per cent a year. Management are doing a good job and there is probably upside to earnings and growth expectations from here,' says Walker.
However, at a price of 17 times earnings, the manager believes the firm may be fully valued at the moment, which is why he is holding rather than buying at its current $100 per share price tag - almost double what he paid in May 2013.
SELL: ROYAL DUTCH SHELL (LON:RDSB)
Perhaps unsurprisingly, Walker recently sold oil and gas major Royal Dutch Shell. He last bought into the stock in February 2005 and it soon became a top holding at around 5 per cent of the total portfolio; however, he says he has been reducing his holding for some time, selling out fully in February.
Walker says the sale was part of a systematic reduction of his oil and gas exposure, which before the sale was slightly overweight at 17 per cent of the portfolio compared to 15 per cent of the trust's benchmark, the FTSE World index.
He is now underweight the sector, which he has concerns about following the recent rout in the price of oil. He is also sceptical about the oil majors' ability to maintain their dividends.
This is particularly the case with Shell, which Walker criticises for its lack of transparency in explaining how it would keep paying its current 5.6 per cent annual dividend yield.
'When Shell released its fourth-quarter results in January, a lot of people didn't think it was being forthright about its cuts to capital expenditure, paying off debts and explaining how it was going to maintain its dividend over the next two years,' says Walker.
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