Health care shares take a beating, but not as much as rest of stock market
Health care stocks aren’t quite as ill as the rest of the stock market in 2008.
People want to be well and live longer no matter what the state of the economy, so the demand for the majority of health care products and services continues unabated.
In the case of established drug, biopharmaceutical and medical-equipment companies holding enormous amounts of cash, they also aren’t dependent on troubled debt markets.
Health and biotech funds are down 25 percent in value this year, according to Lipper Inc., compared with the average U.S. stock fund that is down 37 percent.
"This has been a year when doing best means losing the least," said Kris Jenner, portfolio manager of the $2.1 billion T. Rowe Price Health Sciences Fund, down 26 percent this year after a 19 percent increase in 2007. "Large-cap biotech stocks have done by far the best for us, while managed care firms have dramatically underperformed and big pharmaceutical companies have been in a downturn for years."
Jenner, who holds a medical degree, especially admires the investment prospects of Teva Pharmaceutical Industries Ltd. as the "king of the hill" in generic drugs, and Vertex Pharmaceuticals Inc. for its steps to bring to market a new class of hepatitis drugs.
Jenner’s current portfolio is 35 percent biotech, 24 percent pharmaceuticals, 20 percent services and 15 percent products and devices, with the remainder in life sciences.
Dynamic performers within his diverse portfolio this year have included biopharmaceutical stocks Celgene Corp., Genentech Inc. and Amgen Inc., while medication-delivery and bioscience giant Baxter International Inc. has held its own. Many other holdings haven’t fared so well, though the real promise of health care stocks lies in the dramatically reduced stock prices of so many important companies.
"I would look for a bottoming turn in health care because no sector stays in a bear market forever," said Kelley Wright, managing editor of Investment Quality Trends Newsletter in Carlsbad, Calif. "We’re seeing some pretty attractive dividend yields and also starting to see acquisitions."
Two positive signs that Wright sees among the big drug companies: Pfizer Inc easy fast payday loans. recently reported strong profits on flat revenue, and Bristol-Myers Squibb Co. is effectively reinventing itself by embracing biotech.
Health care stocks have inherent political, regulatory, legal, clinical and reimbursement risks, which means that any bad news can quickly send them into a swoon.
As President-elect Barack Obama prepares to take office on Jan. 20, he has made it clear the economy is his top priority. Health care initiatives seem destined for the back burner as the president and Congress deal with the financial crisis, the budget deficit and the war in Iraq. Investors, however, will monitor activity closely.
Though reform of health care has been vigorously debated since President Bill Clinton’s first administration, the system remains imperfect and has escalating costs, Jenner said. Yet investors should be forewarned that any potential worrisome news will travel fast, adding volatility.
"The only drawback with the health care stocks and funds is that people will start plowing money into them," said Tom Roseen, Lipper Inc. research manager for the U.S. and Latin America. "Then, once they start turning the other way, they are likely to pop out of them."
Be judicious in what health care stocks you choose because there are so many kinds.
"Traditionally, the market has viewed health care stocks as defensive because the drivers of demand for these companies have tended to remain robust irrespective of economic cycles," said Chris Kallos, senior health care industry analyst with Zacks Investment Research. "However, while this has proven true for the most part in the past, the health care sector is not homogeneous and includes many different sub-industries."
Investors should diversify selectively among health care companies with the greatest earnings certainty, Kallos said. Choose the strongest firms within each category, because competitive position separates winners from also-rans.
andrewinv@aol.com
2008, TRIBUNE MEDIA SERVICES INC.