Dear Mr. Berko: The health care market has tanked because of potential health care reforms. I’ve got $106,000 to invest, long term, in a portfolio of pharmaceutical stocks. I want to be conservative, but I would also like to get some decent dividend income if possible. Could you recommend 10 or so pharmaceuticals that pay good dividends and have good potential for long-term gains?
— L.S., Minneapolis
Dear L.S.: The political rhetoric of both major-party presidential candidates, who are calling for lower health care costs and drug prices, has hurt valuations in the health care sector, causing many issues to trade below their higher valuations. The health care industry has been and continues to be richly supportive of both major political parties, and ongoing health care politics will continue to generate volatility in equity prices. Opposition to higher health care costs is primarily political showmanship and BS until the November elections. So there is a very low probability of any health care reforms passing into law.
Over the years, the billions gifted to our trusted congressmen by the American Medical Association, the American Hospital Association, drug companies, health insurers, equipment manufacturers, the biotechnology industry et al. guarantee that no meaningful reforms will become law. We have the best Congress that money can buy, which is why I remain bullish on the health care industry. The same political promises are made every four years, and health care executives understand this process. Therefore, management continues to redeploy capital for mergers and acquisitions. And low interest rates continue to encourage mergers and acquisitions because money has become so cheap. Now management can focus on more muscular pricing and vigorous profit potential via scale purchasing, cost reduction, key strategies and inversion. Include the demands from Obamacare and health care spending will continue its geometric growth.
I believe there’s uncommon potential in health care funds such as Fidelity Select Biotechnology (FBIOX-$184), which traded at $295 a year ago, and T. Rowe Price Health Sciences (PRHSX-$64.33), which traded at $85 last year. I also like the BlackRock Health Sciences Trust (BME-$34.74) and the Invesco Global Health Care Fund (GTHCX-$25.99), which traded at $47 and $39, respectively, last year. FBIOX, PRHSX and GTHCX are no-load funds, whereas BME is a closed-end fund, and you can buy 300, 500 or 1,000 shares for an $8 commission at Fidelity.
