4 Hot Health-Care Stocks as ObamaCare Boosts Ambiguity
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Kraft decided to spin-off its North American grocery business, so the Dow Jones dropped it from its list of 30 industrial stocks. In its stead comes UnitedHealth Group (NYSE: UNH), a $56 billion insurer that operates a network of 754,000 physicians and health care professionals through 5,400 hospitals. According to the firm’s website:
We have perhaps the largest network of physicians, hospitals, health facilities and caregivers in the nation. And we are entrusted with one of the largest collections of clinical data in the world – data that we analyze and convert into useful, actionable information.
The DJIA’s move thrusts the healthcare sector more into the limelight, as UnitedHealth joins Merck (NYSE: MRK), Johnson & Johnson, and Pfizer (NYSE: PFE) as health care companies. However, investors are also looking to other health care stocks as they continue to find ways to trade the new and ambiguous ObamaCare regulations. Below are four stocks that have innovative solutions to health care’s growing problems.
1. Intuitive Surgical (NASDAQ: ISRG)
Intuitive Surgical is Silicon Valley’s version of a health care company. Following its slogan “Taking surgery beyond the limits of the human hand,” Intuitive creates and sells its Da Vinci system instruments, which allow surgeons to operate on patients using a robot-like machine. For an example, this short video explains the process clearly and succinctly.
Intuitive is changing the landscape of healthcare, allowing surgeons to limit invasive surgeries. The surgical consoles can sometimes permit the doctors to operate through just one incision, as opposed to making numerous cuts.
Intuitive’s share price has been on a tear the last few years, rising nearly 500% from its March 2009 low around $85 to its $510 price today. The company’s P/E ratio of 36.2 is a bit high, but Intuitive would be a great buy on a market pullback.
2. Cerner (NASDAQ: CERN)
Cerner is a healthcare IT company that digitizes and hosts patient data and records. The company received a huge boost from the health care reform, which mandated that healthcare service providers migrate to Electronic Health Records (EHR) by 2016 or face a reduced compensation from Medicare and Medicaid.
Cerner serves organizations across the spectrum, ranging from hospitals and managed care organizations to pharmaceutical manufacturers and blood banks. The company’s services works in a similar fashion as Salesforce, in that it hosts patient data on its own servers so that doctors can collaborate over the web.
Like Intuitive, however, Cerner looks to be overbought. The company trades at 35 times its earnings, far higher than the S&P 500 average. However, the healthcare industry’s digital move is only quickening, and Cerner is poised to benefit from any further advances. Moreover, the company’s stock trades around $71, off of its 52-week high of $88.32.
3. Merck & Co.
Compared to the first two firms, Merck is a giant. The company’s $133.67 market cap and its 3.9% dividend rightfully display its dominant position in the healthcare industry. Merck operates in a range of businesses, from prescription and over-the-counter medicines to general consumer drug and care products to selling drugs that help disorders in cats, dogs, fish, cattle, poultry, and horses.
If nothing else, Merck’s revenues will grow along with the general population – more Americans means that more people need to get relief from aching bodies and common colds. Merck trades at 20 times earnings, but shares trade hands at just over a dollar below its 52-week high around $45.17. However, its stable of cash cow businesses makes it a more secure bet than typical drug companies.
Like Merck, Pfizer operates a stable group of core businesses to people and livestock. The company’s most well-known offerings include Celebrex, an arthritis drug, Lipitor for high cholesterol, and Viagra for well … you know.
Over-the-counter, Pfizer sells well-known products like Preparation H, Robitussin, ChapStick, Centrum, and Advil. Like Merck, Pfizer’s market will continue to swell along with the U.S. population, and the company is operating from a strong position.
Valuation-wise, Pfizer trades at 18 times earnings, has a $179 billion market cap, and pays a 3.7% dividend. However, Pfizer trades just under its 52-week high of $24.49. Like Merck, Pfizer is a strong company, and it could continue to rise right along with the market.
President Obama’s healthcare reform has shifted attention to the healthcare sector – and investors are taking notice. With UnitedHealth Group’s admission to the DJIA, the index is now comprised of 13.3% healthcare stocks. And this attention is just the beginning.
If healthcare continues to play a role in the government’s deficit, which it will, the future belongs to the healthcare companies that can reduce costs through innovation. The firms listed above are industry-leaders in their specific niches, and look for their success to continue as our country pays closer attention to the rising costs of healthcare.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Intuitive Surgical. Motley Fool newsletter services recommend Intuitive Surgical and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.