by Jeff Reeves | June 28, 2012 4:39 pm
By now you know the health care law — known colloquially as “Obamacare” and formally as the “Affordable Care Act” — has been upheld by the Supreme Court.
What you might not know, however, is how the decision affects your portfolio. So here’s the score in one sentence:
In the short term, the market will continue to suffer due to uncertainties, and in the long term, the health care sector will be your best investment opportunity.
The fact is that the Supreme Court decision hasn’t provided a clear end to the health care debate. Congressional Republicans will mount a challenge to the bill this summer, and an election in November means anything can happen. Then, of course, there’s the big question of who will pay for what.
It’s also worth noting that the health care ruling wasn’t even the biggest thing on many investors’ minds this week. The eurozone remains in crisis, with Spain now borrowing at nearly the rate I get on my Visa card (should I ever carry a balance). There also are fears that this is the Year of the Draggin’ in China as emerging markets slow, and concerns that the ugly job market in America could send us into a double-dip recession.
As for the long-term hopes of health care stocks, forget about legislation and start thinking about simple demographics. Baby boomers will create a huge need for health care in America, and it is projected that by 2030, one in every five Americans will be older than 65. These are “customers” that need health services no matter who is providing or paying for those services.
That’s the quick take on the SCOTUS ruling and what it means to you as an investor. If you want more details, I picked the brains of some of Wall Street’s top investors and analysts to see what they had to say. Here are their comments, and some links for further reading:
“What’s happening today is a realization that the May correction is still in progress, nothing from the first two weeks of June has really meant anything at all. The market may have sold off more after the decision but it was down anyway, Spanish bond yields above 7% and weakness from Germany’s employment number were going to mean a risk-off day here regardless.”
Read more on Josh’s blog, TheReformedBroker.com.
“Now that the overhang of the Affordable Care Act’s constitutionality has been removed, health care stocks could actually widen their outperformance if defensive names stay in favor. Remember: As much as the market hates bad news, it hates the unexpected even more. The Supreme Court’s ruling leaves much of the sector’s costly preparations of the last few years in place. More important, a $2.7 trillion industry representing 18% of the economy at long last knows where it’s headed.”
Read Dan’s full assessment of the bullish case for health care stocks.
“So is this the disappointment that Obamacare was upheld sell-off or disappointment that the EU summit is likely to change nothing sell-off?”
Follow Paul’s pithy commentary on Twitter @LaMonicaBuzz or tap into “The Buzz” on CNNMoney.
“The Supreme Court’s decision still may be debated on the political front, but it lifts a huge cloud of uncertainty for investors who might have avoided the health care sector while the case was in process. Health care is an anomaly; a sector that has been less risky, overall, than the stock market while also producing above-market returns over time. All long-term investors should be ‘overweight’ in the sector (which currently makes up about 12% of the broad U.S. stock market). And, as you probably know, I believe there are some terrific active managers who can (and have) outperformed the broad health care indexes, including one of the best — the team at Wellington Management that runs Vanguard Health Care and Hartford HealthCare.”
For more on Dan’s optimism for the health care sector after the ruling, check out this full post on InvestorPlace.com.
Click to Enlarge “A common mistake made by investors is to confuse short-term and long-term implications. The health care law does not go into effect until 2014, and then only if it isn’t thwarted by Congress. Today’s news might be quickly forgotten. However, the initial impact of the ruling, which came at just after 10 a.m., was to drive the S&P 500 down through its initial support at 1,315, with a low of 1,314 at about 10:30 a.m.
“Most analysts agree that the ruling should benefit hospital stocks, and Tenet Healthcare (NYSE:THC), HCA Holdings (NYSE:HCA) and others all broke downtrend lines on the news. Clinical labs also should do well, and stocks like Quest Diagnostics (NYSE:DGX) are sharply higher. But some groups, like the health insurers, did not fare so well: Aetna (NYSE:AET) and WellPoint (NYSE:WLP) were all sharply lower. But if these stocks can hold their recent lows the negative reaction could offer investors an excellent buying opportunity. The law imposes a 2.3% excise tax on all medical devices sold in the U.S., other than some personal items, and so medical equipment makers like Boston Scientific (NYSE:BSX) and St. Jude Medical (NYSE:STJ) likely will be hurt in the short term.”
Get Sam’s take on the charts every morning via his Daily Trader’s Alert.
“Ever since Obamacare passed (and even before), most stocks in the health care industry have traded at historically low valuations, reflecting concerns about whether the law would in fact be implemented, and how. Today’s ruling hasn’t put all those questions to rest, but it does eliminate some of them. For example, it’s now pretty clear that managed-care providers like Wellpoint (NYSE:WLP) will be receiving a large influx of new subscribers in the years ahead, even if many of these folks come in through state-sponsored insurance exchanges, where profit margins are likely to be lower than on traditional managed-care business.”
Read more in Richard’s full article, “WellPoint May Be Surprise Winner in Surprise SCOTUS Ruling.”
“The Dow instantly fell 100 points, but honestly, that’s just nervous traders who’d get scared of their own shadow. Bear in mind that the since the Senate originally passed the bill on Christmas Eve 2009, the Dow has gained 2,000 points. Of course, I’m not saying that it caused the rally, but it didn’t prove to kill it either. Also, most of the mandates don’t start until 2014, and there will be a lot of politics between now and then.”
Read more on Ed’s blog, CrossingWallStreet.com.
“The first and the easiest-to-digest reason behind the declines is that the decision doesn’t give the market any more certainty about the future of health care than we had yesterday. The truth is that we have an election in a few months, and one of the parties is, to put it lightly, against the health care plan. The second reason the market didn’t rally is the cost of the plan. What most Americans don’t realize is that everyone will be paying 3.8% in taxes to foot the bill for the Affordable Care Act. That said, every single day, 10,000 new people qualify for Medicare. That is a demographic you can’t argue or legislate away. This group of Americans will need doctor’s visits, medical tests and prescription drugs. So, health care will remain a growth industry regardless of the changing political and legislative environment.”
Read more of Louis’ take on the health care law and opportunities in biotechs and insurers on NavellierGrowth.com.
“The bottom line is that, just as Europe is on a path to mutualize its sovereign debts, the United States is on a path to fully mutualize health care in a single-payer system in which the government supersedes certain roles currently played by insurers. This should be good for hospitals and drug makers because they will have greater assurance of payment for their services and products. But it might be bad for insurance companies, which could find their margins squeezed by the government big-footing their industry.
“The bottom line is that insurance companies like UnitedHealth Group (NYSE:UNH) and WellPoint (NYSE:WLP) might suffer a structural impediment for awhile, or at least until their lobbyists find a way to squirm out of this tight spot. And drug makers such as Merck (NYSE:MRK) and Abbott Laboratories (NYSE:ABT), and hospital groups like HCA Holdings (NYSE:HCA), should find that they have a larger pool of paying customers.”
Read Jon’s in-depth take on the SCOTUS ruling and opportunities in health care.
“Outside of the health care sector, where there will be some clear winners and losers, the Supreme Court’s decision won’t have much of a direct effect on the market. Sure, you can make the somewhat ideological case that big government programs stunt growth over time — which, all else equal, should reduce corporate profits and thus stock returns. But over the next several months and years, the outcome of the European sovereign debt crisis and the possibility of a sharp Chinese slowdown will have far greater impacts. Obamacare might be grabbing the headlines, but investors should be paying far more attention to what’s happening in this week’s euro summit.”
Read more about Charles’ take on the eurozone.
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