Next Investment Opportunity? Citigroup Analyst Says Healthcare Stocks

by: FP Trading Desk October 29, 2008    

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Energy, materials and industrials – all critical factors in the global growth story, all suffered a massive correction in the wake of the credit crisis. With the market having its doubts whether they can regain the lost ground, investors are seeking out the next opportunity – before it becomes obvious to others.

“While there is a tendency for investors to long for past leaders to step up again after a major pullback, history is not on their side,” said Citigroup equity strategist Tobias Levkovich. For example, technology has been unable to regain leadership after the bubble burst. The past 20 years has shown that meaningful sector out-performance does not repeat itself, he said in a research note, and the downturn in apparently uncorrelated emerging markets suggests this time will be no different.

Risk aversion and the desire for some sense of stability might send investors to consumer staples stocks, but the currency risk international sales exposure presents and unattractive valuations makes it difficult for Mr. Levkovich to get behind the sector as the next leader – “unless a bubble of fear expands.”

But health care might be in the right place at the right time and may prove to be immune to economic trends as a result of an aging population, rising obesity and factors outside of our control.

The strategist said:

It has been a disappointing performer for the better part of a decade. At the same time, it provides attractive valuation and the safety/security aspect being sought by investors, especially if economic woes overwhelm the desire to focus on the health care issue.

He prefers health care equipment and service names to pharmaceuticals and biotechnology companies.

Finally, the poor old financials. They should remain of interest to investors seeking to buy in at depressed prices. But more industry regulation, the possibility of further shareholder dilution and the likelihood of lower returns-on-equity make it a longshot for sector leadership.

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This article has 6 comments:

  •  
    Oct 30 01:05 AM
    Let's see, regulation of financials will make them less attractive, so we should all buy... HEALTH CARE. Um, yeah. Barack Obama + 60 Democrats in the Senate sounds like a great time to buy health care stocks. I guess the thesis is that suddenly this gang of socialists will want to simply pay for everyone to get care under all the existing rules, eh? Indeed, that would be highly profitable. If you believe that, though, no need to buy health care; I've got a bridge I'll sell you for fifty bucks.
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  •  
    Oct 30 08:51 AM
    Smoke another one, bearfund, if you think the Dems will do anything (going up against the cogillions of lobby dollars from the healthcare machine) to hurt those making the trillions. This is why we are in the fix we are in now...they will not fight the lobby dollars.

    What will happen most likely, is the Dems will push through gov't assisted coverage for the 47m uninsured, which needs to happen since the private sector doesn't think they are profitable enough, and threat of bankruptcy due to lack of coverage is deplorable in this supposedly great country.

    Don't look for the healthcare industry to suffer much at all. They have spent years positioning their influence.
    Reply | Link to Comment
  •  
    Oct 30 09:24 AM
    Obama's Healthcare Plan, which is GOOD for business, runs through UNH and others. That's the only way he can get it done. And even if they are squeezed on margin they will have millions more under contract.
    Reply | Link to Comment
  •  
    Oct 30 10:34 AM
    You guys may be right but I'm not going to bet any money on it either way. When politicians get involved in an issue with a high degree of public outrage and self-entitlement, anything can and does happen. They do silly things like picking winners and distorting markets, often as unintended consequences of high-minded schemes. If you feel you must invest in this area, I would be looking at large device makers with no US presence; they stand to profit from any increase in demand and may have the pricing power to tell Lenin to take it or leave it. But I'd still rather have the bridge.
    Reply | Link to Comment
  •  
    Oct 30 10:41 AM
    The dems control congress for two years - the healthcare stocks are stagnant. Providing for 47m is a socialist gimmick used in South America and Europe as a collosal failure since you end up adulterating whatever poor healthcare you get already, wealthy fly to clinics, and rationing. I can name several hitech manuf who are floundering because hospital money is drying up for the latest equip.

    There in no increase in equipment purchases since private investors rarely find opportunity next to big labor big government social programs -look at the shortage of vaccines - the social policy caused many manuf to bail leaving shortages.

    On top of this don't forget the current Congress and new Adm will bring the tort lawyer lobby into the fold with guns blazing - they are silent before elections. Also the unlimited expanse of open arms immigration will slam the self insured side of the hospitals and cause massive drying up R and D and new equip. In other words every man for himself cash and carry and Thai hospitals for a fifth of the cost.
    Reply | Link to Comment
  •  
    Oct 30 04:53 PM
    There is no possible way that health care can be profitable if the Dems take over. There are no drug companies in Canada for good reason. They have price controls and that is the death of capitalism. No research no drug companies.
    Reply | Link to Comment
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