Healthcare was considered a defensive sector during the 2008–09 recession, but I believe it will continue to perform going forward. An aging baby boomer population, the Obamacare rollout, and a growing need for disease treatments should lead to profitable investing for many years to come.
The Health Care Select Sector SPDR Fund has outperformed the S&P 500 year-to-date, with 21.8% returns compared to the index’s 14.7%. Longer-term gains are even more impressive–the Health Care SPDR has earned 57.4% over the last 5 years, while the S&P 500 has returned a modest 20.7% in the same time.
The recent Goldman Sachs Group Inc (NYSE:GS) conference shed light on a number of compelling stories in the healthcare industry. Here are two stories I uncovered and how investors can capitalize on them.
Healthcare benefits giant
During the legislative process, uncertainty surrounding Obamacare caused the chief executive of Aetna Inc (NYSE:AET) to initially support the bill, only to later rescind his position and write a Wall Street Journal editorial on why he opposed it.
Fast forward to the present date, and shares of Aetna Inc (NYSE:AET) are reaching all-time record highs as the healthcare law comes into greater clarity. Management recently closed on its acquisition of Coventry Health Care, Inc. (NYSE:CVH), making Aetna the third largest healthcare benefits company in the US with 22 million medical members. The combined company will allow Aetna to achieve economies of scale and overcome the Obamacare mandate, which could limit profits at smaller competitors.
Chief executive Mark Bertolini spoke at the Goldman Sachs Group Inc (NYSE:GS) conference and reaffirmed Aetna Inc (NYSE:AET)’s earnings guidance of $5.70–$5.85 for fiscal 2013. Bertolini also stated that management is ahead of its plans on achieving cost synergies with Coventry Health Care, Inc. (NYSE:CVH), despite the deal recently closing on May 7. In addition to savings, Bertolini cited cross-selling opportunities to an expanded customer base.
Wall Street analysts are likely to raise their 2014 estimates on Aetna as a result of the deal, which could lead to further upside for investors. Analysts at Goldman Sachs Group Inc (NYSE:GS) maintains a “buy” rating and $68 price target on Aetna.
The New York Times published a must-read article on the new healthcare law, detailing why larger firms will benefit and profit.