As promised last week, let’s talk about the rest of the sectors in which you could find profitable stocks for your portfolios in 2007, starting with healthcare. Historically speaking, the healthcare sector is where investors flock when there are signs of trouble on the macroeconomic level.
The logic is that people will always need hospitals and medicines to improve and prolong their lives. Ironically, the same can be said about the funeral sector, but I’ll leave that one alone this time around. I should say, however, that there are quite a few companies with strong valuations, provided they are large caps and have positioned their operations internationally as well as domestically.
Now, for Profit Confidential readers who are not terribly fond of large caps, I recommend looking into the biotechnology sector. Although in the past two years, the performance of biotech initial public offerings (IPOs) has left much to be desired, the industry expects a faster rate of activity in 2007, which may translate into an increase of about 50% for the entire segment, as 30 IPOs are expected to hit the market this year. U.S. biotechs alone are expected to raise more than $40 billion in 2007 through various kinds of financings, which is likely to increase the sector’s overall market capitalization by about 15% year-over-year.
In the same fashion, mergers and acquisitions are not expected to ease up. The reason is simple. Big Pharma is, for the most part, huge, loaded, and not very flexible. As a result, Big Pharma needs now, more than ever, access to new pipelines and new technologies. And that cannot come from within — it has to be acquired from the outside. Finally, picking through the sector’s segments, look into opportunities in stem cell research and in biofuels.
The last two sectors you may find attractive are transportation and financial services. Both sectors are enjoying excellent returns on equity, as well as accelerating revenue and earnings growth rates. In case of transportation, the “culprit” is the global expansion of trade of commodities, while financial services have been favored by investors due to their attractive dividend yields.
So, there you have it! If I were to pick my favorites, I would go for gold, base metals, and biotechnology stocks. Just bear in mind that no company or sector can exist within a bubble, at least not for long. You will also have to do your analysis within a broader context if you want to do your portfolio justice.