Thinking about loading up on the healthcare sector? Check the economy’s tempera-ture, take note of Uncle Sam, and listen to those aging boomers moan about their aching knees.
Many experts say health stocks provide a solid defensive position when everything else is getting pummeled. Amy Arnott, senior analyst for Morningstar, says that if the economy perks up in the first or second quarter of the year, some healthcare stocks could falter. But if the recession turns out to be long and especially nasty, she says, “healthcare’s reputation as a safe haven could help those stocks do well.”
As for government action bearing on the healthcare sector, it’s less likely than it seemed last summer when Democrats took over the U.S. Senate. The war on terrorism has delayed plans to add prescription drug coverage to Medicare — a move that would make the government a big buyer of drugs and probably force pharmaceutical companies to lower their prices. Maintaining the status quo on drug coverage should keep pharm stocks relatively healthy, despite last year’s loss of patent on cash cow drugs like Eli Lilly’s Prozac and AstraZeneca’s Prilosec. Another blockbuster drug, Schering-Plough’s Claritin, will face generic challengers starting in June of this year.
Finally, the bad news for AARP’s newest members remains good news for the healthcare investor. “Baby boomers are reaching the age where they will rely more on medical care and depend much more on prescription drugs,” Arnott says.