Weiss Research Columnist Ron Rowland

Weiss Research Columnist Ron Rowland

by Ron Rowland
Thursday, June 28, 2012 at 7:30am

In a few short hours we should have some big news: A Supreme Court decision on the constitutionality of health care reform.

Investors have a lot at stake. Whatever the court decides will be good for some Health Care stocks … and not-so-good for others.

Back in January, I said Health Care ETFs were poised for another great year. Sure enough, this sector outperformed the broad market by a big margin since the end of February.

What does this tell us? I think the stock market is a lot smarter than lawyers or politicians. Here are the facts:

  • Baby boomers are getting older …
  • There are lots of them, and …
  • All of them want to stay alive and healthy.

The political fight isn’t so much whether people will spend money on health care. It’s more about who pays the bill.

This is why Health Care has long been classified as a “defensive” sector. When times get tough — like now — people cut back on luxuries first. Medicine is more important than designer fashion.

Breaking It Down: Health Care ETFs

Just as physicians specialize, so do companies. Many sub-sectors exist within the broad Health Care category. Focused ETFs give you a way to get a piece of the action. Let’s look at a few of the top players

Health insurance companies, hospitals and other treatment facilities probably have the most at stake in today’s ruling. These stocks are typically described as “health care providers” or “medical services.”

You can get involved through funds like iShares Dow Jones U.S. Health Care Providers (IHF) and SPDR S&P Health Care Services (XHS). Watch these two tickers today for clues on how the Supreme Court

These little things are expensive!

These little things are expensive!

decision impacts the health insurance industry.

Another big group is the pharmaceutical ETFs, which hold drug-company stocks. When they hit on a winning pill, manufacturers and distributors make a mint! But “Big Pharma” also depends heavily on favorable government policy.

The biggest ETF in this category is SPDR S&P Pharmaceuticals (XPH). Watch how it performs over the next few days. The action in XPH will tell us whether the court ruling helps drug companies.

Biotech: Genetic Profit Machine

Last year I wrote about the Biotechnology sector (“How to Invest in the Fountain of Youth”), and biotech ETFs are thriving again in 2012.

With almost $2 billion in assets, iShares Nasdaq Biotechnology Index Fund (IBB) is by far the biggest biotech ETF. Other top players are SPDR S&P Biotech (XBI), First Trust Amex Biotechnology (FBT), and Market Vectors Biotech (BBH).

All these ETFs have posted eye-popping numbers this year. We’ll find out shortly whether the Supreme Court can take the wind out of their sails.

These better work the first time!

These better work the first time!

Health care equipment is another interesting niche. All those gizmos you see in the hospital aren’t cheap. Think as well about the assorted surgically-implanted pins and parts many of us have inside.

Then there’s the boring stuff: Gloves, needles, bags, gowns … even the tiniest clinic has a long shopping list nowadays. Imagine keeping a major hospital supplied with all it needs.

The stocks in this group may have the closest correlation with health care demand. That’s why I think their long-term potential is high. Take a look at iShares Dow Jones U.S. Medical Devices (IHI) and SPDR S&P Health Care Equipment (XHE).

As a sector, I think Health Care will stay healthy and move higher regardless of anything the courts or Congress may do. Yet there will be winners and losers. The ETFs I’ve named today are a good place to start your research. Good luck, and be well!

Best wishes,