Sign Up For Dr. Stephen Leeb's FREE
Market Forecast Financial Newsletter
And Receive As A FREE Bonus Our New
Real Money, Real Profits Profiting from the Silver Boom.
Register & Download This FREE Report!
The much ballyhooed healthcare legislation continues to meander its way through Washington, seemingly getting watered down at every turn. As the House and Senate versions are reconciled, investors are getting a better idea of what kind of changes to expect in the final package. We will try to steer clear of political arguments in this column, and focus more on investment implications.
Clearly there will be some changes throughout the industry, including coverage for many of those currently uninsured and no more insurance exclusions based on pre-existing conditions. However, it looks like the reforms in the final bill will be a far cry from the hard-hitting measures that many expected at the outset.
For investment purposes, we’ll continue to avoid those companies that could be negatively impacted (even if by only a small measure), while advocating what we see as surefire winners – specifically those companies that benefit from longer-term demographic trends.
As we have written before, our country’s aging population presents plenty of opportunities in the healthcare arena. Our focus, however, continues to be in pharmaceuticals. While many drug companies will enjoy tailwinds from prescription growth trends, not all companies are made equal. While name brand drugs use will move higher, generics will continue to grow rapidly as some name brand’s patents are expiring and insurance companies advocate their use because of the lower cost. Growth Portfolio’s Teva Pharmaceuticals (TEVA), the worldwide leader in generic drug sales, is a clear beneficiary of this trend. The company has capitalized on it with tremendous sales and profit growth over 20 percent the last three years, while forecasting similar numbers for 2010. Despite their impressive results, Teva’s shares are still attractively valued at a PEG of only 0.6 based on 2010 earnings. We remain buyers.
Novartis (NVS), a pharma pick from our Income Portfolio, is also benefiting from demographic trends. To be sure, Switzerland-based Novartis is a major player in the generic drug market. However, the company recently made headlines in a move made to diversify its revenue streams. On Monday, Novartis said that it would take control of eye care company Alcon by buying a majority stake from Nestle for $28.1 billion. The purchase would raise Novartis’ stake in the company to 77 percent (in 2008, Novartis paid $10.4 billion for an initial stake), and the company is looking to purchase the remaining 23 percent from minority shareholders.
The merger is the most expensive in Swiss history and would give Novartis total control of Alcon’s surgical, pharmaceutical, and consumer eye businesses which generated over $6 billion in sales in 2008. Novartis, which lost its AAA debt rating in 2008 as it embarked on a more ambitious long-term borrowing plan, will finance the purchase with capital reserves and additional debt issues. In terms of its businesses, we see the acquisition as a positive as Novartis as consumers’ eye care expenditures not only rise with an aging population, but also as a result of metabolic disorders and obesity. The market did not react favorably to the news in the short-term, but we see the long-term implications of the deal as very positive for the company. Shares currently trade at less than 12 times 2010 expected earnings, and the acquisition should help bring earnings growth into the high single digits. Shares currently yield 3.3 percent, an added bonus for investors.
Poll
Mobile
Site
m.leeb.com
User login
Translation
