There’s a lot of fear right now that the stock market could be a bit overbought thanks to a rip-roaring run to start 2012. The S&P is up more than 9% so far in 2012, with the tech-heavy Nasdaq up an amazing 15% since Jan. 1. Yes, there are some encouraging economic indicators — but with unemployment still above 8% and housing still a major problem, there’s no doubt that this so-called bull market is very fragile indeed.
Oh yeah — and there’s the prospect of $5 gasoline prices to cheer about, and the continual risk of a Greek sovereign debt default.
So what are investors to do? Hiding out in cash is certainly safe, but the 2.9% current annual inflation rate will erode your savings. Treasuries provide a bit of returns, but 10-year T-Notes are yielding less than 2% as of this writing — still a losing proposition.
Other than gold, the ultra-volatile hard asset of choice these days, there really aren’t a lot of options other than equities right now.
That’s why investors need to take a cautious approach to the current rally, and protect themselves even as they hope to ride the momentum. That involves investing in stocks that have stability and long-term potential that will serve them well, even if short-term troubles rear their ugly heads.
To that end, here are three crash-proof health care investments to help keep your portfolio’s pulse — even if things sour in the coming months:
Medical software and technology stock Cerner (NASDAQ:CERN) might not be a well-known name to most investors, but this $12 billion company is worth a look. After all, it’s up 46% in the past 12 months — almost seven times the Dow Jones Industrial Average — and has tripled in the past five years.
Cerner is a fast-growing company because it helps health care companies and hospitals run their operations efficiently, but it also has big growth potential if the expected push into electronic medical records really begins in earnest. If government regulators get their way, there will be a federal mandate to make patient records digital and portable — and that means booming business ahead for Cerner.
Growth hasn’t been a problem for the past few years, however, so don’t think this is the only reason to be bullish. Cerner has posted nine straight quarters of revenue growth and eight straight quarters of year-over-year profit increases.
The raw gains are as impressive as the consistency. Revenue jumped 10% and profits increased by 20% from fiscal 2009 to 2010, then revenue soared 19% and profits were up 26% from fiscal 2010 to 2011.
As for 2012? Forecasts are for another 22% in profit growth.
The valuation is a bit high on Cerner, at a P/E of almost 28 based on fiscal 2013 earnings projections. But there are many reasons to expect this company to keep up its momentum.
Big Pharma isn’t exactly a stable health care play, since many of these companies face looming patent expirations that could really hurt their bottom line. Abbott Laboratories (NYSE:ABT), however, is better than some of the other options out there when it comes to the patent expiration game.
For instance, its powerhouse arthritis medication Humira doesn’t go off patent until 2016.
This longer lead time has provided a bit of stability to Abbott in recent years, with five-year returns of over 8% — that’s not just better than peers like Pfizer (NYSE:PFE) and Merck (NYSE:MRK), which are in the red by double-digits, but it’s also better than the broader DJIA.