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Health Care Stocks Could Be The New Bubble



  • Health care spending has grown from 5% to 18% of GDP.
  • Health care spending now eats up 20% of per capita income.
  • Voters seem to have had enough, naming health care as top issue.
  • What happens to health care stocks if the sector is reformed?

The political trends of the last few years point to potential problems in the health care sector. The health care sector is a very popular one for investment. The health care sector is the S&P 500’s second largest (13.89% weighting as of 5/31/2017) and for years has been characterized by growth that easily outpaced overall GDP growth. Among investors that are more conservative, the temptation to overweight health care companies in their portfolio is very strong. The sector offers very low volatility (a beta of .82 using the Health Care Select Sect SPDR ETF (XLV) as a proxy) and many companies pay generous dividends. Growth, low volatility, and dividends, what’s not to like?

However, we see some dark storm clouds on the horizon for the sector. Since perhaps the 2008 presidential election, the topic of health care has been one of the most significant in voters’ minds. Indeed, there is a good argument that backlash against the ACA was the driving force behind the Democrats losing a combined 1,000 state and federal legislative seats since 2010. There is also every reason to believe that health care will be a significant factor in the 2018 midterms and 2020 presidential election. Whether the BCRA passes or not is largely irrelevant to this thesis. We will either have a situation where some 20 million lose health care coverage (BCRA passes) or a situation where the existing health care system still needs fixing.

In 2016, the US spent an average of $10,345 in per capita health care costs. This compares to an OECD34 average of $3,453 per capita in 2015. The US is spending almost three times as much on health care as the average developed country. In fact, as the graph below from the Kaiser Family Foundation shows since the 1960’s, health

This article was written by

Ben Strubel is the President and Portfolio Manager of Strubel Investment Management, LLC ("SIM") a registered investment advisor. Strubel Investment Management provides investment and wealth management services for individuals and business. Mr. Strubel also conducts machine learning and AI research to help improve portfolio returns. Wealth Management: www.strubelim.comAI and Finance: stmt.ai

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We do not own shares of XLV; however, we do own a select few individual health care stocks.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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