"Where Best to Invest"-Healthcare
Thursday, February 09, 2006PAUL KANGAS: Tonight, we wrap up our annual look at "Where Best to Invest". A team of our veteran market monitor guests identified three sectors as prime for growth this year: energy, technology, and healthcare. Joining me now for a look at where best to invest in the health care sector is Robert Gold, director of healthcare research at Standard & Poor`s equity. Welcome to NIGHTLY BUSINESS REPORT, Robert.
ROBERT GOLD, DIR. HEALTHCARE RESEARCH, STANDARD & POOR`S: Thank you, Paul. It`s a pleasure to be here.
KANGAS: I know you head up health care research at S&P equity. Where do you see the best growth potential in this sector?
GOLD: Well, the sector, as you know is very diverse. There`s really a lot of ways we can play it. In terms of pure growth, we continue to see growth in areas that we`ve seen over the past few years, primarily biotech and the small and midcap biotech space as well as large cap biotech space. We see in the medical devices and the cardiology players, some orthopedics and some other areas of the group. And we also see the HMO group. The managed care group has had a stellar run over the past few years, a lot of expanding margins, nice membership gains. We`re seeing a lot of growth there continuing this year.
KANGAS: Now, inn addition to growth Robert, are there some health care stocks that show more value than growth potential?
GOLD: Yeah, that`s a good question. I would say this year we`re focused a little bit more on finding some nice growth stories, a little bit more of a slant towards some of the larger cap names with nice dividends. We think it makes a lot of sense in this environment to go for high quality. In terms of where we`re finding a lot of growth, we think that the large cap pharmaceuticals in the U.S. offer a lot of nice valuation characteristics as well as some nice dividend yields. These stocks, in our opinion, are trading at trough valuations on a historical basis. We think that they`re moving through a lot of the patent exploration problems that they`ve been facing over the past few years. There`s been a lot of nice litigation wins and some of the developments in the Merck Vioxx cases have been going their way. Dividend yields are about twice that of the S&P 500 at about 3 percent.
KANGAS: Let`s get specific, Robert. Which are some of your favorites?
GOLD: Sure. Well, actually, yesterday Standard & Poor`s went to a more favorable opinion of the pharmaceutical sector and our favorites there, we`ve had a strong buy on Eli Lilly since last year. We think they have a nice pipeline and they`re not as exposed to the patent expirations as much as their peers.
KANGAS: OK.
GOLD: We also like Pfizer very much. Pfizer triggered a nice run in the pharmaceutical group at the end of last year. They`ve been doing a lot of things that we like including jacking up the dividend. They have very nice dividend yield at this point.
KANGAS: OK, time for a few more.
GOLD: We also yesterday upgraded Johnson & Johnson and that`s categorized in the pharmaceutical group, but has a very nice exposure to not only pharmaceuticals, but it`s one of the largest medical device companies in the industry as well as a consumer franchise and that`s another stock that`s yielding 2.3 percent. We like that very much.
KANGAS: We only have a half minute left, Robert. What stocks do you think will most benefit from the new Medicare programs like the prescription drug benefit, very briefly.
GOLD: Well, we think the most direct beneficiaries are the generic drug manufacturers. We like Teva and we like Mylan Labs. We think there will be some nice gains membership wise for the HMO`s. Our favorite there are United Healthcare and Wellpoint.
KANGAS: OK.
GOLD: And we think some of the pharmaceuticals will do well also.
KANGAS: All right, Robert, do you own any of the stocks you mentioned?
GOLD: No, I don`t. As group head of the health care, we`re not allowed to own any stocks.
KANGAS: Company policy, understood.
GOLD: Company policy. That`s right.
KANGAS: Very interesting, Robert. I appreciate your being with us.
GOLD: Thank you, Paul. Thanks for being here.
KANGAS: My guest Robert Gold, director of health care research at Standard & Poor`s.
