Friday, November 7, 2008
Of all Barack Obama's coming policies, none has investment analysts more excited than the ones directed at energy...
He plans to invest $150 billion over 10 years on low-carbon energy sources. So natural gas, solar, and wind are immediately the "must-own" industries.
Solar stocks, like Suntech and First Solar, shot up 70% in the last few weeks, before profit-taking pared back some of the gains. Natural gas plays like Chesapeake Energy enjoyed a similar run.
It may be too late to make easy money trading the clean energy names.
But investors have overlooked one obscure sector that will benefit tremendously under Obama... Obama vowed to "invest $10 billion a year over the next five years" to benefit this sector.
The sector Obama is talking about is health care IT. He believes upgrades in health care IT will help rein in health care spending. And he's right.
We spent $2.3 trillion on health care last year, a whopping 16% of our GDP. By 2016, we would be looking at $4.2 trillion and 20% of our GDP. Currently, administrative health care costs account for over 30% of the total. As a percentage, we spend about 2-3 times as much on administration as other developed nations.
The RAND Corporation, a leading health care think tank, estimates the industry could save $162 billion per year through the simple IT upgrades. Switching records from a paper-based system to an electronic one and using bar coding and tracking software will save hospitals time and money, which will also lead to increased efficiency.
And the only way to make these changes is to put more money into health care IT. Last year, health care IT spending by doctors, hospitals, pharmacies, insurers, and the U.S. government totaled about $20 billion. So Obama's $50 billion plan is a significant boost.
Even accounting for a decrease in IT expenditures due to the recession, Obama's plan is enough to drive revenue and earnings to new heights for the sector.
The problem is, more than 300 companies are vying for a piece of the market. Because of the fragmented market, investors don't know where to start.
Let me make your life easy. Here's a list of the most prominent public health care IT companies. The big caps, like McKesson and Cerner, are growing revenues and earnings at double-digit rates. The rest, due to the smaller revenue base, are growing even faster. All of them are extremely profitable with solid balance sheets.
But investors are treating them like any average stocks. With the exception of Quality Systems, these companies are all down year to date. If Obama goes through with his plan, as I predict, these companies will be the biggest beneficiaries. I expect shares to trade 30% higher by next year.
If you want to take advantage of this mega trend, I recommend you use this short list as a starting point. For readers looking for a safe and steady investment, McKesson is my favorite. At around $37 per share, you can buy this word-class company for just nine times earnings. And the returns will soundly beat the S&P 500 in the next decade.
The recession claims two more victims...
Expensive chain restaurants Morton's, Ruth's Chris, McCormick & Schmick's hit new lows.
And clothing... Perry Ellis, AnnTaylor, The Talbots, and Warnaco Group at 52-week lows.
Earnings today... Brookfield Asset Management, Enerplus, Ford, General Motors, Sotheby's.