WEALTH - A Prescription for Profits

Dynamic healthcare issues create new and niche investment opportunities

Comstock Images

As the country heads full speed toward a national election, more people (politicians and the general public) talk about healthcare on the podium, in the press, and at the dinner table. But the dynamics of rising medical costs, expiring drug patents, and health insurance play into investment strategies as much as they play into political debates.

Jeff Jonas, a research analyst who manages the Gabelli Healthcare & Wellness Trust, is counting on politics to dictate where to invest in healthcare.

“The Democrats are your friend, so look for plays that save money for Medicare,” he says. He points to publicly traded hospice companies delivering end-of-life care as a growing business. Medicare now covers hospice care, and Jonas is betting that coverage will continue despite Republican demands to slash Medicare reimbursement. But, as always, a growing trend doesn’t necessarily guarantee profitable returns.

Medicare is looking at significant cost savings as several pharmaceutical patents for major drugs, including Lipitor and Plavix, expire. “Companies manufacturing generics are looking at earnings growth of 15 to 25 percent,” Jonas says.   

When the healthcare reform debate moves to the Supreme Court next month, investment opportunities could crystallize. The high court will rule on whether the Patient Protection and Affordable Care Act is unconstitutional. The law mandates that more than 30 million uninsured Americans buy health insurance coverage beginning in 2014. Can the government force people to buy health insurance?

“This battle is creating a healthcare sector ripe with a great amount of opportunity,” notes Joshua Schachter, principal and portfolio manager of Snow Capital Management in Sewickley, Pa. With $3.5 billion in assets under management, Snow is watching the issue carefully and investing. “We are buying companies in the industry that are trading at a fraction of book value with low price-to-earnings yields yet have healthy cash flows,” says Schachter, pointing to companies that deliver basic services to an aging population, including nursing homes, long-term care, home healthcare, and end-of-life care providers. “We take a long-term position and like a basket of healthcare stocks properly positioned that will do well no matter which way the Supreme Court rules.”

Steve Jacob, a journalist who spent four decades covering health policy for Texas newspapers and magazines and author of Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors, and Skyrocketing Costs Are Taking Us (Dorsam Publishing, 2012) notes that by 2020 the average family of four will spend 17 percent of their total income on out-of-pocket healthcare expenses. In late 2011, he attended a conference in Dallas focusing on venture capital opportunities in healthcare. “These VC guys were bullish on healthcare, seeing the future as if it doesn’t get any better than this for investment,” Jacob says.

He points to the retail healthcare model for significant growth opportu-nities with public companies. Less costly, nontraditional healthcare delivery settings — such as CVS pharmacy’s MinuteClinic, where no appointments are necessary for diagnosis and treatment by a nurse practioner or physician’s assistant for common illnesses, minor injuries, and skin conditions — are growing rapidly. A visit costs less than seeing a physician; access is easier; and MinuteClinic accepts most insurance plans, as well as cash, check, or credit card. “This mode of care is becoming increasingly popular, especially with younger people as their go-to for healthcare,” Jacob says, adding that Walmart has been considering offering management and monitoring of chronic conditions such as diabetes, asthma, and HIV infection, as well as diagnostic services like allergy, PSA, and pregnancy testing.

Another healthcare investment opportunity is privately funding a small start-up. Steven Lawrence, founder and managing director of New York-based Strategies Think, runs an advanced medical procedure training center and a surgical medical device financing company. “The rate of change in the healthcare industry is so fast it presents investors with opportunities to bring new niche competencies into play, like advanced education for the growing move physicians are making toward specialization,” he says.

Lawrence also considers small companies that supply financial and risk services for medical procedures that are new and still in a state of flux with regard to standardization and reimbursement, such as spinal cord stimulator implants. “For investors that are interested in paradigm changes, this is the place to be,” he says.

If one fundamental is certain, changes in healthcare delivery and cost contain-ment will continue with inherent risks and potential rewards for investors who can wait for healthy returns.

Comments to this website are moderated by staff. While all comments are welcome, we encourage all to be polite and please do not use this system for advertising or business promotions. Any complaint towards a business or service should be directed directly to that business and not posted here. If anyone has a complaint that a comment is defamatory, please contact me at tmay@palmspringslife.com and I will take appropriate action promptly. Thank You

Add your comment:
Edit Module
Palm Springs Life
Edit ModuleShow Tags

Related Articles

How to Shop the Sunny Dunes Vintage District for Home Décor in Palm Springs

With the latest addition of Antiques Galleries of Palm Springs, this intriguing little enclave set along East Sunny Dunes Road and Industrial Place offers a clandestine cluster of antique, vintage, art, and thrift stores.

Desert Hills Premium Outlets Extends Hours, Boasts Sales for Memorial Day Weekend

Celebrate the unofficial start to summer with extended hours and special sales at Desert Hills Premium Outlets this Memorial Day Weekend, May 22-25.

Your Love Made Me Appear to Myself

We must be willing to reveal to ourselves, let alone to another, what we’ve chosen to forget and to remove the masks of character we employ.

Desert European Motors Adds McLaren Automotive to British Lineup in Rancho Mirage

Desert European Motors is in the throes of expanding its showroom space and recently announced the addition of McLaren Automotive, which will make it the only location in the country representing every British luxury and performance car.

Trina Turk Splashes Color with Boutique at Parker Palm Springs

In celebration of her 20th anniversary, Trina Turk recently opened a boutique at the Parker Palm Springs.
Edit ModuleShow Tags

Promotions + Contests

2014/15 Best of the Best

2014/15 Best of the Best

Palm Springs Life’s annual Best of the Best. Readers tell us who their choice is for the “Best of the Best” of the Coachella Valley in over 40 categories.
GuestLife Magical Monterey Bay Experience

GuestLife Magical Monterey Bay Experience

Pets on Parade 2015 Photo Contest

Pets on Parade 2015 Photo Contest

Enter your “Cutest Pet” photo in the Pets on Parade 2015 Photo Contest. Online users will be able to like the Cutest Pet photos from six (6) categories.
Cartoon Caption Contest

Cartoon Caption Contest

Each month, we provide a vintage 1950’s cartoon illustrated by Alice Rovinsky. You are invited to submit a caption or vote for your favorite caption.