Highlights from the Goldman Sachs Healthcare Conference
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Goldman Sachs recently hosted its 34th Annual Global Healthcare Conference on June 11 – 13 in Rancho Palos Verdes, CA.
Healthcare was considered a defensive sector during the 2008–09 recession, but I believe it will continue to perform going forward. An aging baby boomer population, the Obamacare rollout, and a growing need for disease treatments should lead to profitable investing for many years to come.
The Health Care Select Sector SPDR Fund (NYSEMKT: XLV) has outperformed the S&P 500 year-to-date, with 21.8% returns compared to the index's 14.7%. Longer-term gains are even more impressive--the Health Care SPDR has earned 57.4% over the last 5 years, while the S&P 500 has returned a modest 20.7% in the same time.
The recent Goldman Sachs conference shed light on a number of compelling stories in the healthcare industry. Here are two stories I uncovered and how investors can capitalize on them.
Healthcare benefits giant
During the legislative process, uncertainty surrounding Obamacare caused the chief executive of Aetna (NYSE: AET) to initially support the bill, only to later rescind his position and write a Wall Street Journal editorial on why he opposed it.
Fast forward to the present date, and shares of Aetna are reaching all-time record highs as the healthcare law comes into greater clarity. Management recently closed on its acquisition of Coventry Health Care, making Aetna the third largest healthcare benefits company in the US with 22 million medical members. The combined company will allow Aetna to achieve economies of scale and overcome the Obamacare mandate, which could limit profits at smaller competitors.
Chief executive Mark Bertolini spoke at the Goldman Sachs conference and reaffirmed Aetna’s earnings guidance of $5.70–$5.85 for fiscal 2013. Bertolini also stated that management is ahead of its plans on achieving cost synergies with Coventry Health Care, despite the deal recently closing on May 7. In addition to savings, Bertolini cited cross-selling opportunities to an expanded customer base.
Wall Street analysts are likely to raise their 2014 estimates on Aetna as a result of the deal, which could lead to further upside for investors. Analysts at Goldman Sachs maintains a “buy” rating and $68 price target on Aetna.
The New York Times published a must-read article on the new healthcare law, detailing why larger firms will benefit and profit.
Serious diseases candidate
The Novato, CA headquartered BioMarin Pharmaceutical (NASDAQ: BMRN) develops and commercializes drugs for serious diseases and medical conditions. I’ve written positively on BioMarin before, notably in my February piece titled This Mid-Cap Pharmaceutical is a Prime Takeover Target.
Shares of BioMarin rallied a massive 25% between my article publication and May 14, the date in which the American Society for Clinical Oncology released the abstracts for BioMarin’s latest drug candidate. Expectations appeared too high for the new drug, as BioMarin's shares reversed course from a record high of $71.56 following the data release at ASCO 2013.
The drug candidate, codenamed BMN-673, is a PARP inhibitor designed to treat patients with solid tumors. Chief executive Jean-Jacques Bienaime presented at the Goldman Sachs conference and highlighted BMN-673, in addition to the promising other drugs in BioMarin’s pipeline.
In addition to BMN-673, BioMarin is seeking U.S. approval for Vimizim, an innovative drug for morquio A syndrome. The Food and Drug Administration recently announced it has designated a “priority review” status for Vimizim and a review date is set for Feb. 28, 2014.
All in all, Wall Street remains optimistic on BioMarin following the Goldman Sachs presentation. Analysts at Goldman maintain a “buy” rating and $80 price target on the company's shares.
More than 120 companies from the pharmaceutical, medical devices, and biotechnology industries presented at the recent Goldman Sachs conference. With a consistent history of innovation and above-average returns, the healthcare sector continues to be of vital importance for all investors.
Aetna appears well-situated to profit under the Affordable Care Act. The company is achieving economies of scale and should deliver superior returns to its peers. Expectations became too high at BioMarin Pharmaceutical, but the stock could reward investors with catalysts in the second half of 2013.
Finally, readers who prefer to own a basket of healthcare stocks will outperform with the Health Care SPDR, which offers great diversification.
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John Macris has no position in any stocks mentioned. The Motley Fool recommends BioMarin Pharmaceutical. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!