Smart Profits Issue #496
Tuesday, February 12, 2008 Two Solid Election Year Investment Sectors: Healthcare and Construction By Martin Denholm,
Managing Editor, Smart Profits Report It's presidential primary day here in Maryland today, as well as in Washington, D.C. and Virginia. Having been left for dead just a few months ago, Republican frontrunner John McCain stormed into the area riding a remarkable wave of momentum. On the other side, a Democrat dogfight is in full swing, with the Clinton bandwagon rolling through on Sunday and Monday, while the Obama team hit the First Mariner Arena in downtown Baltimore on Monday afternoon. But as city traffic came to a grinding halt, this taxed-but-unable-to-vote English guy hung around at the office a little longer, thinking not about political pontificating, or hanging chads, but about how an election year affects the stock market and which sectors could fare well... As Political Rhetoric Ramps Up, The Healthcare Sector Will Be Thrust Into The Spotlight While it's difficult to predict exactly which stocks could receive a boost, there are certain areas that are more prone to move on election developments than others. Let's cover a couple of them beginning with Healthcare... Healthcare: We've mentioned healthcare here before as a very good sector to invest in during an economic downturn or recession. But that holds true during an election year, too. No matter what politicians say or do, people will still get sick and will still need their drugs and medication. You've heard the election year buzzwords and phrases as often as I have, as the struggle continues to find a so-called "universal" healthcare plan that is "inclusive" and "affordable." In an election year, that rhetoric kicks up a notch and puts healthcare stocks in the spotlight. Many stocks could move higher on the perception that the sector will see increased R&D funding. With a massive number of Americans currently uninsured and not able to afford adequate healthcare, you may see the government working more closely with the major drug manufacturers to form a drug pricing plan that covers more people. The bottom line is that drug companies want to sell as many drugs as possible to as many people as possible - but at the right price. So if negotiations happen, the subsequent share price performance of Big Pharma and drug manufacturers will be affected by how successful the outcome is. As Baby Boomers Prepare To Retire, Biotech Is Set For Big Developments In The Healthcare Sector The fact is, though, that many diseases still need treatment, cures and basic research. In addition, with the baby boomer generation just about to hit retirement age, healthcare is more important than ever. That means biotechnology could be set for a big year. My colleague, and biotech expert, Marc Lichtenfeld tells me that many biotechs are expecting phase III data, or an FDA decision this year - pivotal events that could propel shares by double, even triple-digit percentages. He's got a couple to keep an eye on... Genentech (NYSE: DNA): This biotech heavyweight already has approval for Avastin, used for colorectal and lung cancer. But on February 23, the FDA will make its decision on Avastin for breast cancer (with the drug already approved in Europe). Avastin is also being tested in a variety of other tumors. Onyx Pharmaceuticals (Nasdaq: ONXX): The company already hit a home run with Nexavar, a drug that treats kidney and liver cancer. In lung cancer, the drug is phase III trials, in combination with chemotherapy, and phase II trials as a single agent. Positive data could send the shares even higher. Thanks, Marc. I'll add that if a Democrat claims the White House, I believe it could also bode well for companies involved in stem cell research, as current restrictions will likely be eased, or lifted altogether. By the way, having already grabbed a 99% win on the first half of his BioMarin (Nasdaq: BMRN) recommendation - and currently sitting on a 115% gain on the second half, as the stock reaps the rewards from the Kuvan drug success - Marc is also about to make a new healthcare recommendation in the March Xcelerated Profits Report issue that he thinks has superb moneymaking potential. To get on board and find out what it is, follow this link. I'll wrap up today with one more sector that could fare well this election year... Spending To Sustain America's Vital Operations With the Construction Sector Construction: As the U.S. population grows, resources become more depleted and strained. This includes both natural resources like water, and also man-made areas like roads and bridges. Here in Baltimore, everywhere I turn, there's a construction crew digging up a road - part of the city's "Operation Orange Cone" project (my suggestion of "Operation Yet More @#%*$&* Roadworks" didn't seem to fly). But as inconvenient as construction might be, infrastructure spending is vital for the health of the economy and population and is an issue that both political parties can generally agree on. It could see a spending boost with a new president, but the priorities may differ, depending on who it is. Remember, while it's important to pay attention to what's happening politically to gauge what might happen to certain industries, you shouldn't let the presidential election sway your investment decisions too much. It's more important to stick to a company's individual prospects and fundamentals. Best regards, Martin Denholm Today's Smart Profits Action Center: - Six weeks into the election year, the Dow Jones Industrial Index is performing true to election year form - at least according to researchers at Chart of the Day. The group says that in each average election year since 1900, the index has historically endured volatile, choppy trading over the first five months of the year in the uncertain runup to polling day. After that, however, the index has tended to rally as the picture becomes clearer.
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