A GOOD DEAL OF THE CONTROVERSY SURROUNDING the recently passed health-care legislation has focused on the politics, notably the deep rift between Republicans and Democrats.

But what about the investing implications? Last week, Barron’s spoke by phone with an expert, Derek Taner, the San Francisco-based lead manager of the AIM Global Healthcare Fund (GGHCX). The fund’s one-year total return of 41.89% puts it in the top half of its Morningstar peer group. Taner is also the health-care analyst for AIM Charter (CHTRX) and AIM Mid Cap Core Equity (GTAGX).

Most health-care stocks have lagged behind the broader market, although pockets, such as health-maintenance organizations, have had big gains over the last year. Taner, 40 years old, maintains that subsectors like hospitals stand to gain under the new legislation. Generally, he’s skeptical about the plan, which in his view “does nothing to control costs,” and could be scaled back. So overall he is taking a wait-and-see approach. But he has no shortage of opinions about health-care stocks and sectors.

What’s your advice to investors when it comes to health-care stocks?

The sector is really cheap. Earnings growth is consistent, and we have clarity around health-care reform now. In my mind, the call from an asset-allocation perspective is: What do you think of this recovery? If you think we are fully recovered and interest rates are going to go up, health-care should perform well. At the same time, if you think this recovery isn’t for real — if you think this is just a government-stimulus-induced recovery and we are actually going to fall back into a recession — health care should perform well in that environment, too.

What’s your overall take on the health-care legislation?

I’m actually really surprised that they got this done…In January, there was the election in which a Republican, Scott Brown, took control of the Massachusetts U.S. Senate seat that had been in Democratic hands for more than 45 years. I thought that was a sign that people, at least on the margin, had some difficulty with the idea of such a massive and costly piece of legislation passing.

What about the argument that health-care reform is an economic necessity?

Yes, but where it could get difficult is that the program is such a big step in terms of its impact on such a large portion of the economy when there are so many other problems out there. That being said, we will work with it; it’s something that had to be done at some point. I can quibble about how I would have done it, but the reality is that it passed. And as investors, we have to move forward and try to find the sectors that are going to benefit from this legislation.

Do you see any clear-cut winners or losers emerging from the health-care legislation?

The obvious beneficiaries are going to be hospitals. Given what we know today, 32 million additional people are now going to be insured, the Congressional Budget Office estimates. Hospitals are already seeing half of those patients now. The most important part, though, is that hospitals are going to go from collecting, say, 10 cents on the dollar for their costs to about 75 cents. So the hospitals will be losing less money; that will be a significant earnings contribution when this is all implemented.

More From Barron’s

  • Ambac Soars 40% on Q4 Profit; MBI Rises In Sympathy
  • Covidien Shares Are the Right Tonic
  • Jo-Ann Stores CEO’s $5.1 Million Sale

Similar Posts:

Share