Healthcare Investing: How to Make Money in the Healthcare Sector
by Marc Lichtenfeld, Healthcare Expert
Wednesday, April 14, 2010: Issue #1238
When it comes to sectors that offer multiple ways to make money, healthcare investing is right up there among the leaders.
By far the most rewarding (and speculative) way is when you get involved with companies that have new drugs in early development. If you own shares in a company that receives FDA approval for a new drug, chances are you're going to be sitting on huge profits.
For example, one of my service's small-cap healthcare and biotech portfolio currently contains a company that has created a novel way to treat cancers of the liver. We're expecting Phase III clinical trial data to be released any day now, but even before that happens, we're already up 87% because we identified the opportunity early. And if the drug is shown to be safe and effective, shares should soar even more.
We've got several more similar positions in the portfolio. I'm excited about each one and subscribers have the chance to make a lot of money even if only a few of them hit.
But with the healthcare reform bill now passed, I'm also getting more involved with stocks that are going to be in the sweet spot of the healthcare business over the coming years.
And it's a concept that relies less on the whims of the FDA and more on the sound business decisions of healthcare executives...
We've Got the Healthcare Reform... But Costs Are Still Rising
Despite being a deeply polarizing issue, one thing that both healthcare reform advocates and opponents both agree on is that the current plan does little to address soaring healthcare costs.
For example, while the increase in healthcare costs is expected to slow in 2010, costs will still rise by 9%. And prices of specialty drugs are projected to climb by 15%.
It's tough to argue that reform will be meaningful until those costs are reined in.
A friend of mine - a small business owner - recently told me that it's impossible to plan and budget for the future when health insurance for his employees jumps by 25% to 30% per year.
This isn't just a healthcare issue. It affects jobs and the economy.
Fortunately, I expect the free market to do its job, thanks to companies whose products and services are designed to lower the cost of healthcare.
And as a result, patients will likely benefit, too. Not just in their wallets, but where it counts most - their health.
Preventing Infections and Slicing Through Red Tape
One of the companies in my service's portfolio is saving hospitals a ton of money and keeping patients healthier.
In fact, I like the stock so much that I recently wrote about it in The Wall Street Journal.
Rochester Medical (Nasdaq: ROCM) helps correct a major problem currently occurring in hospitals: At least 10% of all patients contract a hospital-related infection during their stay.
Of that number, a large percentage of those are urinary tract infections (UTIs).
Due to a new Medicare ruling, Medicare and some insurance companies will no longer reimburse hospitals for the care of the infection. Hospitals are now on the hook for the costs of treating those UTIs.
In response to those increasing costs, hospitals are turning to anti-infective catheters - the kind that Rochester Medical makes.
And speaking of reimbursement, there is a company in my service's portfolio that is helping doctors' offices cut through reimbursement red tape by streamlining the process for submitting claims.
Not only does its product allow doctors to get paid more money in a faster amount of time, it also saves practices money because the company only gets paid when the doctor does. And there is no expensive software to buy or constant upgrades to purchase.
And my latest healthcare recommendation is set to be a big one...
My Two-Fold Strategy for Healthcare Investing
I'm currently working on a report for one of my services, which should be released early next week.
And talk about a "win-win" for everybody. It's a company that is saving healthcare insurance companies thousands of dollars per patient - and keeping patients healthier at the same time.
The best part is that practically no one knows about this stock. And if the firm even comes close to hitting my conservative sales projections, the price should double from here (and would still only trade at one times its sales).
Of course, I can't reveal the name of the company here, out of fairness to my other subscribers.
When it comes to investing in the healthcare sector, my goal is two-fold: I'll continue to swing for the fences by recommending companies creating novel treatments for cancer and other diseases. But I also expect to chalk up significant returns from companies that are working to solve one of the biggest problems in the sector - reducing healthcare costs.
Hoping your longs go up and your shorts go down.