The Smart Profits Report Issue #489
Thursday, January 17, 2008 Healthcare Investments: 5 Steps to Investing in Healthcare During a Bad Economy
by Marc Lichtenfeld, Senior Analyst, Smart Profits Report While the recent carnage has left many portfolios in tatters and investors nervous to pull the trigger on new trades, the fact is, it’s also created some excellent buying opportunities in the healthcare investments sector. Not only does it offer some enormous opportunities in bull markets, it’s also a very good defensive sector during bear markets. Frankly, when it comes down to it, Healthcare is a recession-proof industry with enormous upside and its stocks deserve a prominent place in most portfolios. I’ll give you an example: In the great bear market of 2000-2002, the S&P 500 slid more than 50%. The Nasdaq fared even worse, plunging 78%. By contrast, the S&P Healthcare Select SPDR (AMEX: XLV) only lost 33%. In fact, some of the XLV holdings actually performed very impressively during the bear market. Johnson & Johnson (NYSE: JNJ) soared 73%, while Abbott Labs (NYSE: ABT) jumped 48%. Even Medtronic (NYSE: MDT) only fell 2% after giving up gains of 27% earlier in the bear market. Talk about some solid bear defense. Even the Chicago Bears of 1985 would be proud. So how about in bull markets? Take a look at this… Healthcare's Reaction to A Massive, Bull-Driven Tailwind Since the bear market bottomed out in 2002, the Amex Pharmaceuticals Index ($DRG) has risen 46%, the S&P Healthcare SPDR is up 76%, and the Amex Biotechnology Index has rocketed 194%. That compares with 79% for the S&P 500 and 116% for the Nasdaq. | Bear Market (2000–2002) | Bull Market (2002–Present) | | S&P 500 | -51% | 79% | | Nasdaq | -78% | 116% | | Amex Pharmaceuticals Index | -47% | 46% | | Amex Biotechnology Index | -66% | 194% | | S&P Healthcare SPDR | -33% | 76% |
Bottom line: Healthcare stocks lost less during the last bear market and, with the exception of the Amex Pharmaceuticals Index, are outperforming the broader markets during the bull. Healthcare Investing - Five Steps - Timing Rallies And Rumors Is Dangerous… Stick With A “Healthy” Long-Term Plan. Here’s the key during a market like this: Don’t try to time it. Buying on false rallies and rumors is a dangerous game – and not one I like to play. We’ve already seen examples of this over the past few weeks.
- Stay in the market for the long-term. Even during a bear market, I leave the bulk of my money invested in my favorite stocks and mutual funds.That doesn’t mean you shouldn’t adjust your allocation, depending on developments and where things are headed. And during a bear market or recession, I’m sure of one thing: I want to be more heavily invested in healthcare. Why? Simple…
- People will get sick, no matter what Bernanke, Bush, Cramer, or anyone else says/does. Just because Joe Six-Pack is no longer buying a big screen TV doesn’t mean he’s not going to suffer health problems.
- If you’re concerned about recession or a weak stock market: Consider repositioning your portfolio into some defensive healthcare names or ETFs. It certainly won’t prevent losses, but they should perform better than the broader averages.
- If you believe the bull market still has room to run: The biotech sector should continue to outperform. Healthcare companies are making great strides today and a host of new data is expected to hit the newswires in 2008. Some announcements have potential to propel specific names significantly higher. Even in a nasty bear market, a company with a notable scientific or regulatory breakthrough should see its shares spike.
Marc Lichtenfeld
Editor’s Note: Marc is putting his money where his mouth is. Far from running for the stock market exits along with most other investors, he’s currently preparing his next healthcare recommendation for the March issue of the Xcelerated Profits Report. Plus, with options expiration on Friday, the XPR team is set to take profits on four positions. Get the details of how you can claim some profits for yourself here. Today's Smart Profits Action Center - Good news for Biogen Idec (Nasdaq: BIIB) and Elan Corp (NYSE: ELN). The two firms currently share revenue on multiple sclerosis drug Tysabri, which appears to be in the midst of a comeback. Having gained FDA approval in 2004, the drug was yanked from shelves in 2005 over reports that it triggered a potentially fatal brain condition. But it returned to the market in 2006 with strict new safety regulations, ensuring that no new cases have occurred, and was approved in the U.K. last summer.
- Now, Tysabri has just been granted approval to treat moderate to severe forms of Crohn’s Disease for patients unable to tolerate other treatments. Right now, Biogen and Elan are conducting tests and risk management and plan to start marketing Tysabri for Crohn’s by the end of February. Of the approximately 500,000 cases of Crohn’s Disease in the U.S., Tysabri could treat 10,000 patients, but annual sales projections fluctuate notably – between $100 million and $500 million.
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