About a year ago, health care stocks were just about the only thing investors could talk about. The impending health care reform legislation had many speculating which players in the market were going to benefit from the new rules and which companies would be left out in the cold. But a year later, there doesn't seem to be a peep about the sector. Granted, the economy, the nation, and the world has moved on to new problems and issues affecting the investment community. But just because it's no longer on center stage, doesn't mean the health care sector hasn't been performing.
While the stock market has been teetering back and forth, and Wall Street continues to speculate whether we're on the verge of a breakout or on the edge of a collapse, health care stocks have been chugging along. That isn't necessarily a surprise, as the industry has traditionally been viewed as one of the top defensive sectors in times of uncertainty for investors. Couple that with companies finally finding their footing and incorporating their major mergers from yesteryear, it only makes sense that health care stocks have been pretty...well...healthy for investors.
Health Care Stocks Stay Fit
Patent expiration, drying pipelines and inevitable industry reform were plaguing health stocks last year and had investors wondering if the growth potential of these companies were capped. While the larger players were paying sizable dividends to investors for their patience, there was a mood of anxiety in the air. But considering that now some of the dust has settled, we can take a look at some of the companies that have done better than their competitors.
Health care stocks can cover a wide range of different type of companies. You have pharmaceuticals, biotechs, medical instrument makers, insurance companies and specialized services. Some sub-sectors have been hot, and some not so much.
Pharmaceuticals and Drugmakers
Pharmaceuticals, once one of the stronger performers in the health care sector, has been weighed down by investor concerns of impending patent expirations. While companies like GlaxoSmithKline (NYSE: GSK), Pfizer (NYSE: PFE), Merck (NYSE: MRK), Eli Lilly (NYSE: LLY) and Johnson & Johnson (NYSE: JNJ) make up some of the largest corporations in the world by market cap, they've also become a little too bloated to spur any exciting growth. Investors of these companies enjoy healthy dividend payments, but not much else. In recent years, some of the larger companies engaged in an arms race of sorts, acquiring competitors in hopes of shoring up their pipelines with the next miracle drug. Whether or not these bets translate to actual revenue growth still remains to be seen.
Unlike pharmaceuticals, biotech companies aren't known to pay big dividends--most don't pay any dividends anyway--but that's because they tend to reinvest their capital back into their own research and development. Companies in this space include: Amgen (NASDAQ: AMGN), Genzyme (NASDAQ: GENZ), Cephalon (NASDAQ: CEPH), Dendreon (NASDAQ: DNDN) and Bioden Idec (NASDAQ: BIIB). While drugmakers are traditionally stable but boring, biotech investments usually hinge on home run bets. For example, Dendreon Corp. is one of the hottest stocks on the market right now because of its prostate cancer drug Provenge paying off. The stock was trading in the single digits just two years ago, but at one point skyrocketed to as high as $57. Stock prices basically live and die on FDA announcements.
Health Insurance Stocks
Surprisingly, health insurance stocks have done quite well despite the backlash it has endured from consumers and regulators in the previous months. Companies like Aetna (NYSE: AET), Humana (NYSE: HUM), WellPoint (NYSE: WLP) and UnitedHealth Group (NYSE: UNH) have actually been consistently delivering better-than-expected quarters and are benefiting from higher enrollments. The controversial health insurance mandate as part of the reform probably didn't hurt either. Another positive is that analysts point to the fact that most health insurance companies are still trading relatively cheap, with P/E ratios hovering around 10. But if medical costs increase or additional legislative changes are enacted, the sector's bill of health may not be so clean.
Other Health Care Investments
Technology companies are also having an impact on the entire health care industry. But we're not talking about biotech here; just tech. Companies like Express Scripts (NASDAQ: ESRX), Allscripts Healthcare Solutions (NASDAQ: MDRX), and Cerner (NASDAQ: CERN) all provide information technology and medical records solutions to the medical field. They've been pretty hot names mainly because of their potential to revolutionize how the health care industry handles patients.
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