Opportunities In Healthcare Stocks

Another week, another ride — in this case, a ride up as the major indices got back to even on the year and erased 2010 losses. Since most stocks enjoyed gains last week, a fair number of stocks dropped off our watchlist and a few saw double-digit gains. However, we must remain unaffected by the markets’ whipsaw action and focus on the true drivers of long-term investment growth.

As such, the two names catching my eye this week is one of the few stocks which saw a loss last week and a new name to the list — both operating in the healthcare industry.

Johnson & Johnson (JNJ) is enduring a tough year, with broader health care reform dovetailing with recall and FDA issues to drive the stock lower. And yet, is there any doubt JNJ will weather this storm in fine condition? The Enlightened-American has owned JNJ in the past but we sold due to disinterest in the stock’s slow-and-steady prospects.

Of course, this was in a pre-2008 market crash world — it is one thing to state preservation of capital as a main investment objective but perhaps it takes a traumatic experience like late 2008/early 2009 to truly imprint this paramount goal into an investor’s psyche. In these uncertain times, the prospect of JNJ’s slow-and-steady returns coupled with a 3.5% yield that promises to grow annually looks mighty tasty.

The other enticing watchlist stock operates in the health insurance space. Like many of its peers in the insurance space, it sells at a sizable discount to free cash flow but faces the spectre of health-care reform and the uncertain prospects which come when Uncle Sam is a large customer. Combine this with the paltry dividends offered by the industry as a whole and I have been reticent to move into this space.

However, readers should be aware of my bias toward dividends  and draw their own conclusions.

[This post is excerpted from the latest watchlist article from EA-Premium.]

Leave a Reply

-->