Daily Gains Letter

The Investment Story of the Next Decade?

By for Daily Gains Letter |

Pros Obamacare InvestorsIn spite of the debate over whether Obamacare, also known as the Affordable Care Act, is good or bad for the nation’s healthcare sector, what I do know is that the additional policies will likely drive up the demand for healthcare services and products as an investment opportunity.

Now I’m not here to debate or discuss the merits of the healthcare plan. All I can say is that if we can get people enrolled in some sort of healthcare plan, then as far as I’m concerned, that’s great for the country and its citizens. Studies have shown that in the countries where healthcare is available to everyone, there tends to be a higher happiness factor and people live longer.

But back to the investment opportunity: Obamacare will add tens of millions of Americans to the healthcare system, Americans who previously had little or no coverage but will now have access to basic healthcare. The result is a significant increase in demand across the board—and as I said earlier, this will translate into a rise in healthcare stocks as an investment opportunity.

At first glance, the big pharmaceutical companies, such as Merck & Co., Inc. (NYSE/MRK), Pfizer Inc. (NYSE/PFE), Johnson & Johnson (NYSE/JNJ), and UnitedHealth Group Incorporated (NYSE/UNH), are an investment opportunity directly benefiting from the move. These are excellent long-term healthcare stocks that have proven themselves over the long haul and could offer a good investment opportunity.

If you would rather play the healthcare boom via a fund, take a look at an exchange-traded fund (ETF) that comprises of numerous key healthcare companies that could rally from Obamacare and provide an investment opportunity. An example of such an ETF may be Health Care Select SPDR (NYSEArca/XLV).

The chart below shows the nice upward move in the Health Care Select ETF since mid-2012. There is some current congestion on the fund’s chart, but I feel the trend will remain positive based on my technical analysis.

Health Care Select sector Chart Chart courtesy of www.StockCharts.com

These are the fund’s top-10 holdings as of March 30, 2014:

Stock

Symbol

% Holding

Johnson & Johnson

JNJ

12.39%

Pfizer, Inc.

PFE

9.14%

Merck & Co., Inc.

MRK

7.44%

Gilead Sciences, Inc.

GILD

4.86%

Amgen Inc.

AMGN

4.15%

Bristol-Myers Squibb Company

BMY

3.82%

UnitedHealth Group Incorporated

UNH

3.64%

AbbVie Inc.

ABBV

3.63%

Biogen Idec Inc.

BIIB

3.30%

Medtronic, Inc.

MDT

2.76%

Source: Yahoo! Finance, last accessed May 1, 2014

For some of you, taking a small-cap view may be more appropriate as an investment opportunity due to the higher potential return and high growth metrics.

On the small-cap side, you could take a look at an ETF like PowerShares S&P SmallCap Health Care (NASDAQGS/PSCH), which includes Cubist Pharmaceuticals, Inc. (NASDAQ/CBST), Questcor Pharmaceuticals, Inc. (NASDAQ/QCOR), and Align Technology, Inc. (NASDAQ/ALGN), among other stocks.

Whatever way is best for your investment profile, the healthcare sector will likely be an investment opportunity going forward.

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