With attempts to enact a major overhaul of the Affordable Care Act (Obamacare) having failed, what’s the smartest way to invest in the health-care sector now? Number one, don’t be fooled by how well health-care stocks have done this year. The overall sector rose 21.4% through October 15, compared with 15.9% for the S&P 500 stock index. That was based largely on investor relief that the Republican-led Congress did not pass legislation that could have drastically reduced the number of people covered by health insurance.
Despite that, it’s wise for investors to focus on stocks not tied to the fate of Obamacare, especially in light of the Trump administration’s steps to bypass key provisions of the law. That means avoiding stocks of hospitals, nursing homes and other health-care providers. No matter what fate Obamacare faces, I expect robust growth for pharmaceutical and biotech companies, in part because we’re unlikely to see new rules capping drug prices anytime soon…and I like wholesale drug distributors, which streamline the process and reduce the cost of procuring and distributing drugs for pharmacies.
My favorite health-care stocks now…
Ligand Pharmaceuticals (LGND) licenses out its biotech drug patents to dozens of pharmaceutical companies, which handle the late stages of drug development and sales, in exchange for royalties on those sales. These drugs include Promacta for low platelet (blood-clotting cell) counts and Kyprolis for multiple myeloma.
McKesson (MCK) controls one-third of the market for distributing medications in the US. Its clients include health plans and major pharmacies such as Rite Aid and Walmart.
Shire PLC (SHPG), based in Ireland, makes drugs for rare immunological and neurological diseases as well as treatments for ADHD and binge-eating disorders.