Monday, August 12, 2002

Healthy-Looking Issues

In this turbulent market, investors seem to have even lost their appetite for stocks in traditionally defensive areas such as drugs, managed care and medical devices. Health stocks in the S&P 500--while faring better than the overall index--are still down 18% for the year.

"None of these sectors is emotion-proof," says William Meade, managing director and institutional sales specialist with RBC Capital Markets, an investment bank headquartered in Toronto.

This dip may well be an opportunity. Valuations for many health care and medical companies are low relative to history--and 79 million baby boomers aren't getting any younger. By 2011, estimates the Centers for Medicare and Medicaid Services, health care expenditures in this country will hit $2.8 trillion, or 17% of gross domestic product.

Health stocks also come with certain risks, namely from Washington. These include the possibility of declining reimbursement levels, the push to control drug prices and the unpredictability of actions by the Food and Drug Administration. But RBC's Meade isn't too worried about the government: "This administration is much more company-friendly because they realize that costs do have to go up."

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