Peter Mycroft Psaras'  Instablog

Health Care Stocks are becoming a larger part of my Clients portfolios these days as I feel that history is repeating itself and that the companies that I have bought for them are selling at a fraction of what they are worth. At the same time, as a group, they are also paying out a hell of a dividend.  The reason health care stocks have gone down so far is because of the threat of Obama Care.  In the 1990’s I made a killing in this sector as Hillary Care just scared everyone and their mother out these stocks, with her universal health care proposal.  Obama Care is round two and I feel that my clients are going to make a killing by investing in this sector, because President Obama does not even have the votes in his own party to do anything on the Universal front.  Health care stocks are only second to tobacco stocks in performance over the last 100 years and the reason for that is because each company is made up of mini-monopolies that have exclusivity patents on each drug for multiple years. 

I remember a friend of my great uncle who successfully survived the depression because he owned nothing but successful drug companies.  He used to wear the same jacket everyday as he had his wife sew the stock certificates in his jackets lining.  He did not trust banks and safety deposit boxes and always wanted his money with him.  That was in 1982 and he always used to tell me, when you see drug companies having dividends twice what the market is paying, that is the time to jump.  He knew those companies, which he had sewn in his jacket, better than any analyst that ever lived.  He had thousand of shares of various drug companies and was probably walking around with millions of dollars in shares in his jacket.  In the 1990’s I put his advice to good use and bought Schering Plough, Merck (MRK), Johnson & Johnson(JNJ) and Medtronic(MDT) when they crashed and made a killing.

I have loaded up my clients portfolios with health care related stocks as I see Obama Care failing in the same fashion as Hillary Care did and see a scaled down version of an improved health care system emerging based on private, quasi-public providers. This plan will incorporate the 40 million uninsured into the system in a more organized fashion and boost business for all private firms as the money they will lose in reducing their rates, they will gain in added those 40 million uninsured to the books. 

One company that will benefit no matter what happens is LabCorp (LH).  They are the largest blood testing company in the world and along with Quest Diagnostics(DGX) have a duopoly going on.  The reason I like LH is because your average blood center can do about 800 different blood tests, while LH has over 10,000 tests available and are the exclusive blood testing lab for many of the companies doing research related to Human Genome research.  That is the future and LabCorp has a monopoly in that area.  In the meantime Lab work is the least expensive part of health care, but whose results provide 70% of the conclusions in a patient’s diagnosis. So if you add 40 million people +10 million illegal’s to the customer base (that have never been tested before) you are making the health care system more efficient and will be able to avoid people showing up in emergency rooms, because their Cholesterol is 300 or their Blood Sugar is 400.  This will save the system $billions. 

As for the drug companies, Eli Lilly(LLY) for example is trading at 60% below where it was just 2 years ago, but its Free cash flow has gone up since then and its shareholder equity is expected to double by 2010.  In 2007 it was trading at about 20 times its free cash flow, but now is insanely valued at just 7.65 times its 2010 free cash flow estimates.  Health Care stocks are trading at depression levels and that is why my clients are in them.  Just one piece of good news from Washington and we are off to the races.

 
Disclosue = Long MRK,LLY,LH, JNJ   No positions in MDT,DGX

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