by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
Both President Obama’s and Senator Kennedy’s healthcare plans are estimated to cost $1 trillion over 10 years.
I’ll believe it when I see it. When was the last time the government completed any project on budget?
For example, Health Systems Innovations, a healthcare consultant that has worked with private health insurers and the McCain presidential campaign, estimates that Senator Kennedy’s bill would cost $4 trillion over 10 years.
Should a healthcare plan be passed that even resembles anything like the current proposals, $2 trillion in costs would be a minor miracle.
A trillion here, a trillion there. Pretty soon, you’re talking about real money.
In my column last week, I offered three biotech stocks that should perform well, regardless of any healthcare reform plan that may be passed. As those reforms gather momentum, I’m going to explore a few more investments that should thrive, even in the face of a healthcare system overhaul…
Make Money From Bond Market Trouble
Despite the President’s popularity, he’s not likely to get everything he wants. Some sort of compromise is likely. But it’s safe to assume that the cost of the healthcare plan will be a 13-figure number (i.e. more than $1 trillion).
On a macroeconomic level, that would likely be inflationary and cause bond prices to decline. So if you’re a bond bear, here are two investments for you…
- UltraShort 20+ Year Treasury ProShares (NYSE: TBT): This ETF is not for the faint-hearted. It seeks to perform at twice the inverse results of the Lehman Brothers 20+ Year U.S. Treasury Index. So if the Index drops 5%, TBT should return rise about 10%.
- ProFunds Rising Rate Opportunity (RRPIX): This is a mutual fund that also seeks the inverse performance of the bond market. Its results aim to correspond to 125% of the inverse of the daily movement of the 30-year Treasury bond.
How To Buy Genzyme For $47.50
In last week’s column, I discussed the attractiveness of biotech companies that treat rare diseases.
But one of those names, Genzyme (Nasdaq: GENZ), had a major setback this week when it disclosed problems at one of its manufacturing facilities.
I believe these difficulties are temporary and I still like the company. But if you’d prefer to reduce your risk further, you can look at selling put options on GENZ at a lower strike price.
And when it comes to selling puts, look no further than Lee Lowell. He’s the master at this strategy and is currently riding a 100% winning streak since his Instant Money Trader, which focuses exclusively on this strategy, began last November.
I explained to Lee why I like GENZ, but wanted a good put-selling trade for investors who want to own the stock at a lower price. Here’s what he suggested…
- Sell the October 2009 $47.50 puts, currently trading at $1.85 on the bid. This means for every put that you sell, you will collect $185.
- Keep in mind that one put contract represents 100 shares.
- If GENZ never sees the $47.50 strike, you keep the $185.
- If the stock drops to or below $47.50 at expiration, you’ll be required to buy the stock for $47.50 (100 shares of GENZ for every put contract you sell). But remember, that you collected $1.85 already, reducing your cost basis to $45.65.
So if you like GENZ, but would prefer to own it at a lower price, this is one trade to consider.
Add Watson To Your Watchlist
In my column last week, I also suggested best-in-class generic drug maker Teva Pharmaceuticals (Nasdaq: TEVA).
Another generic drug maker to look at is Watson Pharmaceuticals (NYSE: WPI). Watson just announced its acquisition of privately held Arrow Group, a generic biotech drug maker, with significant international operations.
I like this move by Watson, as it broadens the company’s reach both in products and markets served.
The bottom line is that while healthcare reform could very well change the investing landscape within the sector, you can always find opportunities if you know where to look.
Disclosure: No positions