The Dow Jones has been zigzagging nearly all year long. Everyone knows that.
Transportation stocks, basic materials and commodities have been sagging, even plunging. Most people know that, too.
What many people may not be aware of — or may be underestimating — is the strength and sustainability of one key sector that's been making investors money through thick and thin: health care.
I see it practically everywhere I turn ...
* At the doctor's office, swamped with folks my age — the 76 million baby-boomers born between 1946 and 1964 ...
* In our high Weiss Ratings that have been assigned to a growing number of health providers, insurers, and innovators, plus ...
* In my own portfolio, where health-sector stocks and ETFs have shined.
So I've decided to do something today that I rarely delve into: Give you my team's assessment of this industry and name two companies in the sector that I own in my Ultimate Portfolio.
But first, consider the three dynamic factors currently adding fuel to the fire:
1. Obamacare is not going away. Quite the contrary. Like Social Security and Medicare did decades earlier, Obamacare is digging roots. It's spreading its tentacles. And it's well on its way to becoming a permanent fixture of socialized medicine in America.
2. Mergers and acquisitions are heating up.
3. And perhaps most important, new health technologies that seemed like science fiction just a few years ago are coming into their own.
Here are two prime examples ...
As you may know, my company, Weiss Ratings is the only one in the country that rates the nation's insurers with no conflicts of interest. Unlike A.M. Best, Moody's, Standard & Poor's and Fitch ...
- We rate the companies involuntarily — whether they want to be rated by us or not.
- We never give them the right to preview their ratings or to appeal their grades before publication.
- We never suppress publication of the ratings upon their request.
- And perhaps most important, we never accept payment from the companies to issue the ratings.
So if we see a danger on the horizon, no one can stop us from raising the alarm.
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But right now, I can tell you flatly, the health insurance business is looking more robust and more promising than at any time since I began rating the companies decades ago.
Add Obamacare mandates into the mix, and you've got a recipe for substantial growth.
Aetna was founded 11 years before the American Civil War and was one of the first in history to offer lifetime pensions (now called annuities).
Fast forward to 2015, and we see the company's most recent quarterly report was another in a long line of solid earnings growth: Profits of $2.39 a share, well above the $1.95 that Wall Street was expecting ... revenues of $15.1 billion ... and a big jump of 120,000 new insurance customers to a total of 23.7 million.
Heck, in the past 12 months, the health insurance industry as a whole has seen its premiums increase by 5.9%. Meanwhile, Aetna has grown its premium income by 14.2%, or nearly two and half times faster.
And that's just the tip of the growth iceberg: Aetna has just acquired Humana. Before the acquisition, the company's revenues were roughly 40% from government sources and 60% from private. Now, after the deal, those numbers flip to 40% private and 60% government. With Obamacare kicking in, that shift could not have come at a better time.
The clincher: Once the merger with Humana is complete, Aetna will be the largest provider of Medicare Advantage in the country.
If your hair is as gray as mine, the world of biotechnology may seem like science fiction to you. Things like DNA sequencing, cloning, nanotechnology and gene marking sound like terms out of Star Trek instead of Wall Street.
But as complex as biotechnology is to the layman, it has become an established, successful part of the health care industry that is both saving lives and enriching investors.
Just be aware: If you invest in immature biotech companies, it can be extremely risky. But if you favor established biotech companies with a wide range of multi-billion-dollar drugs — and more in the pipeline — it can be very profitable.
Gilead Sciences is a prime example of the latter.
Yes, years ago it was a little-known biotech startup. But now it has matured into a major company with an impressive track record of discovering, developing, and bringing to market cures for some of mankind's most prevalent life-threatening diseases.
I'm talking about HIV/AIDS, liver disease, heart disease, serious respiratory ailments, and now hepatitis C.
Gilead Science's new drug combination — Sovaldi and Harvoni — doesn't just treat hepatitis C. It cures it.
This is a disease that's the most silent of silent killers — a disease in which symptoms are rare until it's too late. Moreover, hepatitis B and C now account for 75% of all cases of liver disease around the world. They're the leading cause of liver transplants in the U.S. Plus, they're a major cause of cirrhosis and liver cancer.
In fact, it's no exaggeration to say that hepatitis C has reached the pandemic stage with an estimated 3% of the world's population infected, including 3 million to 4 million in the U.S. and up to 170 million worldwide.
Without intervention to prevent its spread of the disease, the death toll from hepatitis C could surpass that of AIDs. In fact, the new infection rate already has — it's estimated that there are 300% to 500% more people infected with hepatitis C than HIV.
Hepatitis C is such a serious problem that the U.S. Preventive Services Task Force recommends that all baby boomers get screened. This push, combined with the Affordable Care Act provisions, will drive insurance plans to provide hepatitis C screening at no charge to patients ... and that alone could generate a tidal wave of people requiring treatment.
In this context, Gilead Sciences has the first-mover advantage: It has already captured about three-quarters or more of market share — a stranglehold that translates into a growing stream of profits.
And their earnings report last week is a case in point: Revenue grew by 52% year over year to $7.6 billion, beating Wall Street expectations by $680 million.
Earnings did even better. At $2.94 a share, they beat expectations by almost 28%.
And looking ahead to full-year 2015 results, the company boosted its sales outlook to the $28 billion-$29 billion range from $26 billion-$27 billion.
Overall, both of these stocks are good examples of investments to buy on weakness and to own whether the market averages zig or zag.
But you should also know that, along with my stocks, I have an oversized allocation to cold cash — as a cushion against the risks I've been telling you about, and as a treasure chest to buy bargains in market corrections. I think you should seriously consider the same.
Good luck and God bless!
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The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.