Markets don't like uncertainty, and a big chunk of it was removed Sunday after Congress passed landmark health care legislation that will extend benefits to 32 million uninsured Americans.
As the dust settled the day after America "answered the call of history," as President Obama put it, health care stocks generally strengthened. Some of the biggest health gainers Monday were drug and hospital companies, while insurance companies were pressured by fears of greater restrictions contained in the legislation.
So, now what?
Reams have already been written about the ongoing politics of the legislation and what it means for individuals in terms of health care and insurance coverage. But what about from an investing perspective?
We asked some StreetAuthority experts for their take on healthcare in the wake of the bill's passage, and here's what they had to say:
Aging baby boomers were already expected to put an additional strain on an already tight supply of nurses in the United States. Prior to the passage of the new healthcare bill, a U.S. government study projected a shortage of one million nurses by 2020. Pile on another 32 million Americans who will now be covered by healthcare insurance under the new law and the demand for nurses will only rise. The new law doesn't kick in until 2014, giving high school students a solid career path -- and the employment-challenged enough time to retrain for an in demand degree. And that boosts my outlook for the for-profit education company DeVry (NYSE: DV). DeVry's healthcare education is one of its higher margin segments, and already is delivering 25% of its revenues.
-- Amy Calistri
Chief Investment Strategist
Stock of the Month, The Daily Paycheck
Irrespective of the ultimate merits or lack thereof regarding the massive new entitlement program, the market is taking it all in stride. Investors are focused on debt, global economic stability, corporate earnings, interest rates, etc., which all points to a ‘normal’ market dealing with ‘normal’ economic vagaries. Conventional wisdom says insurance stocks will ultimately get hurt because of this legislation. But, for the time being, owning health insurance companies makes a lot of sense to me, since virtually everyone will be "forced" to own it. At the moment I like Aflac Incorporated (NYSE: AFL) and Catalyst Health Solutions, Inc. (Nasdaq: CHSI).
-- Mike Turner
Chief Trading Expert
Mastering the Markets
Now that the healthcare debate is over, it's clear that big changes are coming. As with any massive regulatory overhaul, some companies are cowering in fear while others are chomping at the bit. Those capable of trimming fat from the system will be the ultimate winners, which is why I'm looking at biogenerics as an area of opportunity. Name brand biotech drugs can be prohibitively expensive -- the cancer drug Avastin costs up to $100,000 annually. Biogenerics are already saving lives and cutting healthcare costs in Europe, and the recently-signed legislation provides guidelines for formal FDA approval of a "pathway" for biogenerics. I'm already bullish on generic drug makers like Hospira (NYSE: HSP) and Teva Pharmaceuticals (Nasdaq: TEVA), and if biogenerics are given regulatory green light, these two stocks could soar.
Transitioning the nation to digital medical records is a $16 billion element of President Obama's stimulus package and a key aspect of any health care reform. The leading vendors in this area were among the first additions to the Government-Driven Investing portfolio in our inaugural May 2009 issue. athenaHealth (Nasdaq: ATHN) is a leader in this field with its software that devises and deploys digital medical records systems. The company's website goes so far as to its customers that they will receive the stimulus payments for switching to digital medical records. Given the massive dollars Uncle Sam is pouring into digital medicals records, what this really spells is opportunity for growth-oriented investors willing to understand the issues rather than react to Wall Street's anxiety.
Chief Investment Strategist
It's true that on the downside, the pharmaceutical industry will face about $90 billion in new taxes and fees as a result of the legislation. However, the industry benefits in other ways. Prescription dollar values should rise as a number of new markets open since various groups of new people will now have access to preventative medication and insurance will help them pay. That should help Bristol-Myers Squibb Company's (NYSE: BMY) sales as well as the revenues of a number of the major drug company peers. Further, despite a strong push by generic drug companies to reduce the competition-free period to seven years, the new legislation sets it at 12 years. That should help BMY maximize revenues on the new drugs it introduces from its pipeline. Fundamentally, BMY sells at a trailing P/E of 5.0. If that seems ridiculously cheap, it is particularly so when analysts' estimates that earnings will grow +9.8% between 2010 and 2011 are factored in. BMY has a one-year PEG (PE / Earnings Growth Rate) of 0.51 (4.97/9.80). Anything less than 1 is considered cheap. BMY sports a return on equity of 23.4%, nearly 1.6 times that of the S&P 500's 14.8. When I bought the stock for my portfolio 13 months ago, BMY had paid $1.15. Since then, the dividend has been increased twice and the annual payout is now $1.24. The company has paid out a reasonable 66.3% of its last 12 month's earnings in dividends.
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