Will Trump’s Healthcare Act “Make America Sick Again?”
Healthcare company stocks have taken their fair share of beatings in the last two years. But President Donald Trump’s proposed American Health Care Act is breathing some life back into them. If you’re looking for the best healthcare stocks in 2017, you may have come to the right place.
The great thing about the healthcare sector is that, no matter how the economy is doing, the established companies will keep minting money.
It’s easy to understand. Boom or bust, people will get sick. And in the coming years, a lot of people will be getting sick.
The economists are calling it the “baby boomers effect.” There is a whole swarm of the population approaching old age. With old age come health problems. It’s easy to guess that demand for healthcare will shoot up.
For a tip on picking the best healthcare stocks to invest in, look no further than Warren Buffett of Berkshire Hathaway Inc. (NYSE:BRK.B); the legendary billionaire investor who built a fortune from the ground up.
This recession-proof sector has always remained on Berkshire Hathaway’s radar. Buffett is known to have used one key trick to play this sector.
Every time the healthcare sector met with a speed bump, he jumped on the opportunity to buy in cheap. Let’s revisit one such instance from the history books on investing.
It’s a flashback to 1993 when first lady, Hillary Clinton, came forward with a plan to reform America’s healthcare sector. On the agenda were propositions to establish checks on healthcare companies and making health insurance available to every American. But protests from the opposition killed the plan.
Nonetheless, the damage was done. The healthcare sector received a big nudge. Healthcare stocks dipped to create a buying opportunity for value investors like Buffett.
Deja vu! The same thing happened again. This time in late 2015. I’m calling it the “Clinton fallout.”
In September 2015, the infamous “Pharma Bro,” Martin Shkreli, raised the price of a drug his company owned from only $13.00 to a whopping $750.00. It was an archetypal case of price gouging. The widespread criticism that followed made big noise on social media.
It wasn’t long before the news made it to the Democratic party front-runner’s table. Hillary Clinton was swift to step up. She made her stance crystal-clear. If she took office, Clinton would be going after the healthcare companies. Her agenda of healthcare reforms was once again on the table.
That event knocked over the first domino. Healthcare stocks plummeted. And, since then, every time the stocks staggered to head north, we found them running out of steam. The stocks kept flip-flopping because the future of the healthcare sector remained uncertain. Politics was killing healthcare stocks.
Chart courtesy of StockCharts.com
This went on until Donald Trump took office. The Trump effect went into play when his healthcare policy started making more sense to the markets. This time, healthcare stocks took a new flight.
Donald Trump Healthcare Policies and the Stock Market
Now in 2017, investors have one question: is it safe to invest in healthcare under Trump?
One-word answer: yes!
As opposed to Trump’s Draconian immigration policy, Trump’s healthcare policy seems market-friendly. But here are a few things you need to know before you jump on the bandwagon.
1. Trump wants perfect market competition in the healthcare sector. He wants market economics to determine prices. Free markets will mean little interference from the government and more power to the healthcare companies. In short, it’s good news for healthcare stocks.
2. Trump wants the Food and Drug Administration (FDA) to expedite drug approvals. This will serve as a blessing in disguise to companies awaiting approvals. Keep an eye out for winners in biotechnology stocks.
3. Hospitals will face the biggest blow if Obamacare gets repealed. With insurers out of the picture, hospitals will see fattening bad debt expenses on their income statements. You might want to steer clear of hospital stocks.
4. The Trump administration is proposing to cut funding to the National Institute of Health (NIH) by 20%. This could hurt healthcare companies with research arms and laboratories that depend on government sponsorship.
5. The Trump administration’s anti-abortion and anti-marijuana policies may hurt companies with high stakes in contraceptive products and medicinal marijuana products.
Overall, however, Trump’s plan reduces barriers to entry for new healthcare companies. Trump wants to take down the wall around healthcare companies, not build one.
Now that we have a clear picture of the likely policy effects, let’s get down to business.
Best Dividend Healthcare Stocks Under Trump
Here is a list of what I believe could be the best healthcare dividend stocks under Trump in 2017.
1. Medtronic plc.
This is one company set to make the most of the baby boomers effect. Let me explain.
Medtronic plc. (NYSE:MDT) makes some of the world’s most popular surgical and cardiovascular medical devices in the world. It is the go-to company for surgeons. From pacemakers to insulin pumps to surgical kits, Medtronic has it all covered for the boomers getting sick with old age.
You name it, they have it!
Plus, in the last year, the company’s management has been doing a massive overhaul. Medtronic has both acquired and invested in complementary businesses, while putting up on sale less valuable units. All in all, management is strengthening Medtronic’s position as an industry leader against peers Boston Scientific Corporation (NYSE:BSX) and St Jude Medical Inc (NYSE:STJ).
The cherry on top is management’s pledge to return $5.0 billion to stockholders by 2018 in the form of share repurchases or dividends.
For a history of over three decades of steady dividend payout and a dominant market position, this is the kind of company I would want to add to my portfolio and forget.
2. AbbVie Inc
Think of AbbVie and one word comes to mind: “Humira!”
Spun off from the mighty Abbott Laboratories, AbbVie Inc (NYSE:ABBV) is known for its best-selling drug, Humira. In fact, Humira is one of the top selling drugs in the world in terms of revenue.
Competitors are trying to replicate, it but Abbvie’s patent protection is strong. CEO Richard Gonzalez says Humira is being patent-protected for at least the next five years, until 2022. Beyond Humira, the company has a whole bunch of other top-selling drugs in its portfolio.
But why I truly love this stock is for how it rewards its stockholders. The company boasts a whopping 138% return on equity! That number is rare to find.
Abbvie pays out over half of its earnings in dividends and buys back shares to return value to its stockholders. I wouldn’t think twice to call it one of the best dividend-paying healthcare stocks in 2017.
Were you investment-savvy like Buffett and had bought ABBV stock on the dip through the Clinton fallout, the stock would have returned you over 33% in under a year and a half.
But better late than never. Put this one on your watch list right away!
3. Novartis AG (ADR)
Novartis AG (ADR) (NYSE:NVS) is one of the most diversified of healthcare companies. Unlike its famous competitors Bristol-Myers Squibb Co (NYSE:BMY), Gilead Sciences, Inc. (NASDAQ:GILD), and Johnson & Johnson (NYSE:JNJ) that tout narrowly focused drug portfolios, Novartis has all of its bases covered for selling a bit of everything.
From its famous eyecare division, Alcon, to its super-popular generic drug division, Sandoz, Novartis owns some of the most valuable and sought-after brands in its portfolio. This is why its bottom line keeps growing, while its peers struggle to keep up.
What’s more, Novartis pays a gargantuan chunk of its earnings in dividends; a whopping 95%, to be exact. The dividend yield of 3.64% is among the highest in the industry.
This Swiss company could see a big lift under Trump for one particular reason. Novartis makes nearly half of its money outside of the United States. Trump’s promise to cut down corporate taxes could encourage Novartis to repatriate some of its dollars lying in Swiss accounts and put them to good use here.
Again, could you question it as one of the best dividend healthcare stocks in 2017? I wouldn’t.
Final Take on the Best Healthcare Stocks Under Trump in 2017
It remains uncertain how much of Trump’s American Health Care Act will replace Barack Obama’s Affordable Healthcare Act, but one thing is certain.
These companies are some of the most established names in the healthcare sector and will remain so for the years to come on the back of strong product portfolios and mighty international presences.
All of these companies stand to win big under Trump’s proposed plan, and yet, don’t lose if Obamacare stays. In a nutshell, these healthcare stocks seem like safe bets for a long haul.
Just remember the valuable lesson from Buffett. Look for speed bumps to get greedy when others are fearful.