This week we discuss how investors can help address a behavioural health crisis while also profiting. We cover how bearish, literate strategists can be an investor pothole and I get distressed by a best of the 80s music list.
Healthcare
These stocks will benefit from necessary expansion of mental health treatment
You don’t have to walk far from The Globe and Mail HQ in Toronto to see examples of homelessness seemingly resulting from unmet demand for addiction and mental health treatment.. The issue is North American-wide and particularly acute where housing affordability is the most punitive.
Behavioural issues go well beyond the unhoused. The pandemic underscored the incidence of mental health issues across the entire population - a recorded 25 per cent increase in anxiety and depression during the first year of lockdown also helped tackle social stigma around mental health.
The U.S. Substance Abuse and Mental Health Services Administration estimates that in 2023 one in four adult Americans endured mental illness. One in five Americans age 12 and above had a substance abuse disorder. Treatment was unavailable for the vast majority.
Barclays analyst Hannah Greenberg thinks investors can be part of the solution by backing both new treatments and their availability.
The analyst sees three key areas for investment, the first of which is pharmaceutical companies developing new treatments for depression schizophrenia and other conditions. New depressions drugs are being developed by Biogen Inc and Sage Therapeutics, for example. Abbvie Inc. and Bristol-Myers Squibb Co. are working on new schizophrenia treatments (as a disclaimer, I’ve owned a position in BMY since early 2009).
Mental health treatment providers are the next important investor segment, both in-person and virtual solutions. Ms. Greenberg points to Acadia Healthcare Co., operators of behavioural health centers, virtual treatment providers Talkspace Inc. and Lifestance Health Group Inc. as pure plays in this area.
Barclays identifies behavioural health treatment enablers, which can include those building treatment centres and other facilities, as the third key area for investors. This includes health care REITs (Sabra Health Care REIT and Assura PLC) and related technology.
It is a rare Canadian family that has not seen evidence of a behavioural health crisis in recent years. Data points to significant shortage of resources that also points to an investment opportunity. The necessary growth in behavioural healthcare, both in terms of expanding existing services and developing new treatments, will both benefit portfolios and help address a major societal problem.
Forecasts
Th danger of literate bears
The combination of effective writing and a bearish point of view will always be a be a problem for investors. Basic human psychology rewards threat recognition and caution so where market risk is concerned flight, not fight, often seems the more intelligent option. We are all susceptible to well packaged doom.
I was reminded of this recently by CNBC host Carl Quintanilla who posted a year-old research excerpt from BofA Securities investment strategist Miahcael Hartnett that reads, “[Central banks] likely ain’t finished breaking stuff. .. stay bearish/defensive & sell the last hike.” The S&P 500 is up 35 per cent since then.
I like Mr. Hartnett’s writing style – pithy, blunt and unique. A recent report contained the phrase “Zeitgeist: “It’s the bubble dream…Fed slashing, oil crashing, China inflating; only thing that gives me pause is long-end still bid, and if this China stimulus don’t work then geopolitical risks going to soar”.”
The added entertainment value doesn’t change the fact that he’s been wrong and investors following his advice have underperformed. Other bearish investors might say, “He’s right, just early” but so is everybody given a long enough time horizon.
There is an old saying among traders that goes “The bear case always sounds smarter” and it’s important to keep that in mind no matter whose research reports we’re reading.
Diversions
This list sucked (in my opinion)
I was young in the 1980s but that’s not the only reason it’s my favourite decade. The new music, starting with Joy Division’s Love Will Tear Us Apart and, for pop, Madonna’s debut, was a refreshing change from drug-addled hair metal and classic rock that was starting to sound a little stale. Rap was brand new.
All of this is to preface how much I despised Pitchfork’s 200 Best Albums of the 1980s list. I am well aware that lists of this type are designed to create discussion and apoplexy, but this one caused me actual physical distress.
The Go-Gos are comically underrated at number 123 obviously and INXS is also too low at 114. I’m ok with the top two selections but even though I think This Woman’s Work is among the best pop songs ever, Kate Bush’s Hounds of Love is NOT the fourth best album of the 80s and no one can convince me otherwise.
Anyway, read list at your own risk.
The essentials
Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.
The Rundown
The current stock market has Ian McGugan thinking about 1997. And that’s both exhilarating and ominous.
TC Energy has completed its spin off of South Bow Corp. last week. Spinoffs have been producing strong returns this year, writes David Berman, supporting the argument that narrowly focused companies can perform better when they are carved out of unwieldy conglomerates. And that seems to be the case with South Bow. There’s a strong case for buying more if you want steady income from a generous dividend.
We’ve been living with a two-tier stock market for at least two years. The tech sector has been driving growth stocks higher. The rest of the market has been muddling along at around break even. Now we’re seeing a reversal of that, says Gordon Pape. Dividend stocks, which were hit hard when interest rates were rising, are making a comeback.
What’s up next
Friday October 11 is the next big day for Canadian economic data with the net change in employment release. Consensus economist guess 35,000 new jobs created and the public versus private jobs creation breakdown will be scrutinized closely. The unemployment rate is expected to 6.6 per cent.
The Americans have a report on the trade balance on Tuesday, a deficit of US$70-billion for August is expected. The Fed minutes will be released on Wednesday. Thursday is the big day next week with U.S. CPI out. Headline month over month increase of 0.1 per cent for September is forecasted, 0.2 per cent ex-food energy.