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Where to Find the Best Hidden Health Care Investments

By Rob Fannon, editor Medical Investor
Friday, March 16, 2007

It's no secret that Americans spend a fortune on health care… about 16 cents of every dollar made, in fact.
 
Last year alone, we spent $2.1 trillion on medical expenses.
 
So, where does all of this money go? Well, as you can imagine, a lot goes to doctors, hospitals, and drug and insurance companies. That's no surprise.
 
But there is a handful of little-known medical businesses you've probably never heard of, some of which make an absolute fortune for shareholders, year after year.
 
Contract research organizations (CROs), for example, handle the nitty-gritty of drug trials for Big Pharma. Last year, drugmakers spent $60 billion on research, funneling of 25% to CROs. That number is expected to double in five years' time.
 
Another out-of-the-way industry, medical devices, sells premium-priced, high-margin products and generates big cash flows. As baby boomers head into an active retirement and as America's waistline expands, medical devices – like drug-coated heart stents, pacemakers, and joint replacements – are going to be more and more in demand.
 
Actually, the health care industry is hiding a few more of these gems...
  • Pharmacy benefit managers (PBMs) are third-party vendors that organize and operate prescription-drug benefits for private employers. For example, a PBM might develop a list of drugs available to employees and negotiate bulk-sales contracts with drug companies on its client's behalf. Of course, in the process, PBMs rake in tons of money.
  • The insurance industry is highly fragmented, opaque, and downright messy. Medicaid-only insurance companies, however, make up a highly profitable niche, focusing exclusively on managing government-sponsored medical insurance benefits.
  • Drug wholesalers essentially act as middlemen, getting prescription drugs from the point of manufacturing to the patients that need to take them. In my next essay, I'll discuss a company that gets paid every time a drug is dispensed in America's nursing homes.

American consumers are pouring money into the health care sector (remember, we spent $2.1 trillion last year). And with the market's recent volatility, investors are flocking to "defensive" sectors, like health care.

 
The average investor will do well putting money into the obvious health care plays, companies you might read about in the Wall Street Journal. But superior returns can be found in these behind-the-scene players.

 
Stay tuned next week for more details...
 
Good investing,
 
Rob Fannon




Recent Articles
Market Notes
Medical-device giants Stryker, Akzo Nobel, and Baxter all at 52-week highs
 
Oil pipeline companies continue to lead market: Martin Midstream, Valero LP, Magellan Midstream, Kinder Morgan Energy, and Martin Midstream hit new highs
 
In the news: Wal-Mart to sell loans at the checkout counter.  
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%