Buying Healthcare Stocks for an Obama Presidency

If you own any healthcare stocks, especially HMOs, you have felt the unease of investors this year. In an election year, especially one in which universal healthcare has been a key position; these stocks have taken a tumble. Because of this idealism, some healthcare names have seen their share prices beaten down to historic levels, catching the attention of value investors’. I illuminate why this is the buying opportunity of the decade.

Universal Healthcare

Health industry executives and investors have few reasons to worry about the so called health care reforms or a universal system proposed by Democratic presidential nominee Barack Obama. While Obama is endorsing a universal coverage system, it is unlikely that he will be able to convince a 49-49 political party deadlock in the Senate and the small 236-199 democratically led House to endorse such a plan.

In fact, democratic Senator Jay Rockefeller recently commented on the proposed healthcare reforms when he said “We all know there is not enough money to do all this stuff.”

History has revealed that wide comprehensive changes are hardly ever accomplished in Washington. This is particularly true when an issue as complex as social security, Medicare, healthcare, energy, and immigration. These have been hot button issues in presidential elections for years and while there has been progress, total reform has been futile. Using history as a guide seems to indicate the current pessimism on Wall Street regarding the healthcare industry, may prove to be overdone, especially with its strong fundamentals.

Strong Industry Fundamentals

Even amid fears of healthcare reforms and economic malaise the sector’s fundamentals are continuing to show resilience. More recently:

• U.S. consumer spending on medical care goods has started to move higher
• Consumer spending on health insurance as a percentage of total spending typically increases as retail sales growth falls, which has been a good sign for the managed health care group.
• Growth in real personal spending on prescription drugs has turned up
• The last time retail sales growth slowed substantially, the medical equipment industry performed relatively well
• Net profit margins in the pharmaceutical space appear to be moving higher
• Balance sheets in the health care sector remain flush with cash, boosting the possibility of an increase in share enhancing stock buybacks and increased dividend payments

Recent Performance

The overall healthcare sector has bucked this trend in recent months as investors have sought safely in its stable earnings and attractive valuations. Healthcare’s momentum has been increasing more recently and it was the second best performing S&P sector for the month of July, only surpassed by the recently rallied financials.

With overblown fears of a nationalized universal healthcare system, strong industry fundamentals, and healthcare’s recent tick upward now may be the time to buy healthcare names uniquely positioned to outperform in the coming years. I have selected three of my favorite and will follow this post up with details on all.

Comments

[Alan Brochs...:]

Not sure where you are getting your data from on the sector returns. When I look at the S&P website, 5 sectors were up in July, with Healthcare being #2 behind Financials.

2008 Aug 01 09:07 AM

[Doc 224899:]

Obama is the champion of the trial attorney's lobby, at a time when our ever-growing surplus of fee-hungry lawyers is alarmed by how little money is available to be gouged from corporate entities that actually do something useful (like build bridges or produce energy or make food).

Healthcare has been the trial attorney's dependable source of fees for many years, a well of money they've taken for granted and never had to worry about. As times get tougher and tougher, they will go back to the well too many times, and drain it dry.

Eventually the entire country will have unsurvivable practice conditions, like the state of West Virginia now has. People will die rather than receive treatment, from simple maladies like pneumonia. The population will shrink as declining population rates collide with increased mortality rates. Like West Virginia, there will be no medical schools left in the entire country.

The trial attorneys will love it, since increased bad outcomes look to them like increased opportunities to bring lawsuits. Congress is nothing but a bunch of lawyers, so they won't do anything to interrupt the trend.

The net outcome will be fewer people in a country with fewer resources and no industrial production capacity to speak of: problem solved.

2008 Aug 01 09:44 AM

[bflower:]

I do think there is the potential for universal health coverage to enhance our economic standing in the long term. After all, we spend MUCH more that other industrialized nations on healthcare as a percentage of GPD and we have less and less to show for it (declining health status - I think we're number 42 in the world over all). If our health system ran more like universal european plans, and the costs were similar, we could, in theory open up 5-7% of GDP. If we allocated this correctly, it could be spent suring up our position and the #1 country in the world (build infrastructure, invest in alternative energy, build schools, etc).

Thoughts?

2008 Aug 04 10:34 AM

[PeakOiler:]

The professional political pundits who follow the Senate and House races coming up for the vote in November say that the Democrats will expand their majorities in both, and have a good chance to go into 2009 with 60 senators which would represent an un-veto-able majority.

2008 Aug 04 10:23 PM

[mwfall:]

if obama- be ready for the country becoming a big ghetto.

2008 Aug 11 03:05 AM