Healthcare Stocks: Are They Worth The Risk?

| December 15, 2010 | 0 Comments

“What do you know about health insurance?”

Those were the hurried words Marisa spoke when I picked up the phone last week.

“I wouldn’t touch that one with a ten foot pole”, was my quick response.

“No, do you know anyone who sells health insurance?” she asked.

“Oh, that I can help you with…”

My initial response to Marisa was one of brutal honesty.  Health insurance companies and healthcare stocks in general are bad investments right now.  I wouldn’t touch them with a ten foot pole…

It’s true that many healthcare stocks are cheap.  But it doesn’t matter.  Why?

In a word… uncertainty.

Nobody knows what the future of healthcare in America will look like.  It’s making it nearly impossible to have any conviction about healthcare stocks.

Just this week a federal court ruled one of the key elements of the healthcare reform is unconstitutional.  The requirement most Americans carry healthcare insurance or pay a penalty was thrown out by the courts.

The requirement is necessary to keep two of the best parts of healthcare reform.  It’s tied into the requirements insurance companies charge all consumers similar prices and prevents the exclusion of preexisting conditions.

The lawyers are gearing up for a long and heated battle in the courts.  Eventually the Supreme Court will need to rule on the constitutionality of the law.  But until they do, it only adds to the uncertain future facing healthcare companies.

To be perfectly honest, I’ve spent too much time wading through the healthcare reform debate.  And I still don’t know if there’s a good solution.

I do know the current system is broken.

Healthcare expenses are taking up an ever increasing chunk of household income.  And the cost of government programs like Medicare will eventually bankrupt the country if something doesn’t change.  It’s simply unsustainable.

The old system of laws also created a non-competitive environment for health insurance companies.  It’s allowed them to limit coverage and provide horrible customer service.

But at the same time, I don’t like the government telling me what to do or how to spend my money!

At this point, I’d like to see the healthcare reforms stick.  I’m not certain the outcome will be better than the previous system.  And anyone claiming to know is blowing smoke.

From an investment standpoint, I’m steering clear of healthcare stocks.  The only parts of the industry I do like are pharmaceutical and biotech companies.

I still like the growth opportunities for the small cap stocks doing research and development of new drugs and treatments.  And the large cap drug makers have an opportunity for tremendous growth in emerging markets.

But as far as investing in the future of healthcare in America… the future is too uncertain for me.  And there are simply too many great opportunities to invest in other areas of the economy to warrant taking on the additional risk.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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