A Pianist’s A–V by Alfred Brendel _ The New York Review of Books
By: Jacob Allen; Nick Pascoe; Trevor Boren; Garrett Lachney; Joe Brendel.
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Transcript of By: Jacob Allen; Nick Pascoe; Trevor Boren; Garrett Lachney; Joe Brendel.
Mid-Year Sector Review:Healthcare
By: Jacob Allen; Nick Pascoe; Trevor Boren;
Garrett Lachney; Joe Brendel
Companies that cater to the needs of people
through pharmaceuticals, hospitals, doctors’ offices, nursing homes, and other health-related facilities
Demand: demographics & advances in technology
Segments Drug manufacturers, biotechnology, medical
supplies/equipment
Overview
Professional Viewpoint: Slightly Bullish
Baby Boomer Population Life expectancy approaching 80 in the US
Political Viewpoint: Uncertain Affordable Care Act Politics in Healthcare
Current State of Sector
Bright Horizons & LipoScience IPO expected
this week Brean analyst Jon Aschoff downgraded Celsion
shares last Thursday – shares dropped 32% that day (ended with a 13% loss on the day)
Obama’s 2nd inaugural address and healthcare
Recent Headline News
Healthcare sector is usually described as
defensive Demand for health services and products are
essential and relatively constant across different economic expansions and contractions
Not affected by cyclical forces or monetary policy as much as others
Healthcare is, however, influenced by government regulation
Macroeconomics
Though the health care sector is very diverse in
terms of the industries within it, there are some key drivers that apply to nearly all of them.
Governmental Regulation: - Vast sums of money hinge on the acceptance of federal regulatory institutions.
- The patent industry. Ageing Population:
- This driver is very universal in its effects in the industry.- In general, any sharp increase in the population of
unhealthy people will result in the healthcare industry seeing more business.
Key Drivers
R&D:
- R&D easily reaches into the billions on an annual basis.- Inability to innovate and come out with new and successful products, many times is attributed to shortfalls in research and design.
The Economy: - Boils down to employment and government spending.
- When the un-employment levels are high, the level of uninsured Americans increases.
- When the economy starts to tumble government spending comes under increased scrutiny. Things like government subsidies for R&D, or grants for medical research are all at risk of being downsized.
Key Drivers
As with the key drivers, some valuation matrices are more applicable
to one industry than another within the healthcare sector. Though for the healthcare sector, there are some specific ratios that must be taken into consideration before actively investing.
P/E and Forward P/E:- Though some industries within this sector can have
slightly volatile earnings, the P/E ratio is still important to the more stable and mature companies in the sector. P/CF:
- Many of the companies in the healthcare sector are very large, and have large portfolios of assets. This can lead to P/E ratio not showing a clear enough picture. So the P/CF ratio can give a more accurate picture of the value that a firm can return to shareholders.
Relevant Valuation Matrices
PEG ratio:
- This ratio is good for companies with high growth prospects, such as startup Pharmaceutical firms. The PEG ratio takes into account the potential for high relative growth, and therefore the comparison of PEG ratios must be between companies with above average growth prospects. Debt/equity:
- Many companies in the sector, such as hospitals, have high amounts of debt. And due to various factors in the healthcare system, they are often left with a fair amount of uncollectible accounts. The ability to meet debt obligations is something that investors must examine thoroughly before taking a position in this sector.
Relevant Valuation Matrices
UnitedHealth Group Inc. (UNH) - 10/11/12 Cardinal Health Inc. (CAH) - 10/16/12 DaVita (DVA) - 10/18/12 Johnson & Johnson (JNJ) - 10/23/12 WellPoint Inc. (WLP) - 10/30/12 Pfizer Inc. (PFE) - 11/8/12 Baxter (BAX) - 11/15/12 Eli Lilly (LLY) - 11/29/12 Stryker Corporation (SYK) - 11/29/12
HC – Stock Recommendations
Date Presented: Oct. 11 Recommendation: No Vote: N/A Price Then: $57.66 Price Now: $55.74
United Health Group (UNH)
Date Presented: Oct. 16 Recommendation: Buy Vote: No Price Then: $42.05 Price Now: $44.61
Cardinal Health Inc. (CAH)
Date Presented: Oct. 18 Recommendation: Buy Vote: No Price Then: $109.87 Price Now: $114.68
DaVita (DVA)
Date Presented: Oct. 18 Recommendation: No Vote: No Price: $71.86 Price Now: $72.70
Johnson & Johnson (JNJ)
Date Presented: Oct. 30 Recommendation: Buy Vote: Yes Price Then: $61.01 Price Now: $63.60 Earnings released today:
Profits surge, beat estimates
WellPoint Inc. (WLP)
Date Presented: Nov. 15 Recommendation: No Vote: No Price: $65.95 Price Now: $66.95
Baxter International (BAX)
Date Presented: Nov. 29 Recommendation: No Vote: N/A Price Then: $48.58 Price Now: $53.29
Eli Lilly (LLY)
Date Presented: Nov. 29 Recommendation: No Vote: N/A Price Then: $54.05 Price Now: $61.56
Stryker Corporation (SYK)
The Health Care Sector (XLV) is very non-
cyclical. Defensive stock
Low beta: 0.66 Health is always a top priority
Not affected much during weakened economy
Cyclicality
Most of the Health Care sectors are non-
cyclical. The biotechnology industry is the most
cyclical. Due to being heavily tied in with technology
Industry Cyclicality