I wanted to provide an update to the Specialty Healthcare watchlist that I began almost a month ago. Remember, I'm not providing any stock tips or investment advice, but rather am sharing with you some of the stuff that I'm looking at plus an occasional gaffe or success. There are a 3 stocks on this list that I find interesting and will do more research on for myself: DVA, FMS and HGRD.
DVA (Davita) and FMS (Fresenious "fruh-si-nee-ous"--I'm sure Webster would note the pronunciation differently) are both dialysis providers. Unfortunately, dialysis will continue to be a growing business. Davita notes in their most recent earnings release that their revenue increased because they administered more treatments. Unless we Americans find a way to reduce the incidence rates of diabetes and high blood pressure, the two major contributing factors to chronic kidney disease, they will be able to write that script for years to come. I don't think that we'll change our lifestyle or demographics (aging population) quickly enough to make a dent in their numbers. Fresenious is another leading renal care company. They are German owned. Recently Fresenious announced with Amgen a joint effort to test Amgen's Aranesp--a drug to help treat anemia in dialysis patients.
I used to have hard fast numbers, but alas, that was another lifetime. So, I'll just tell you this...renal failure is a booming business. Did you know?......If you develop renal failure (or End Stage Renal Disease"ESRD") your costs are on the health plan's nickel until about your 33rd month. After that, Medicare pays for your expenses should you live that long. An ESRD patient costs on average $100K per year for a health plan. There was some proposed legislation rattling around to increase that time period for three more months. At $8.33K per month, that would be another $25K moved off of the government and back onto the health plan. So Medicare reimbursement rates go along way toward affecting revenue of these providers, and those rates are lower than the commercial payors.
Healthgrades (HGRD) interests me for two reasons (and these guys popped before I finished my noodling on them as they caught an upgrade. I've not position..YET). First, quality of care is a big issue in the healthcare field--and you'd be surprised by the divergences in care among healthcare providers. In fact, in Bush's speech last week, he mentioned quality of care. Healthgrades provides information about different providers. Trust me on this....this is a heckuva business model. They are projecting their revenue to grow 30% this year, and their P/E is 65+. Second, and this is definitely blue sky speculation on my part, I think that these guys would make a lovely jewel into a more comprehensive product suite. In fact, I would see them as being a pretty interesting target for someone like WEBMD (WBMD) or Healthways (HWAY). A very logical fit into a suite of comprehensive health services.
So let's see what happens with these folks in the future. I'd like to pick up some HGRD on a pull back. Here's a chronic problem that I have...it's hard for me to pay a p/e of 65 for a stock. I couldn't buy AKAM when it had its very first break out when it was in the low 20's. I waited for a pull back that never materialized. Oh well, could, woulda, shoulda doesn't work--and THAT's a measure of success for an investor to be able to say that.
4 comments:
test
It's not just HGRD's P/E. It has a helluva beta too.
I bought 300 shares of FMS in late August. Wasn't able to get a P/E on it but at least its beta, while high, isn't as high as HGRD's. And it has a yield.
I see dialysis becoming bigger and bigger in the future. FMS is a long-term hold for me.
Beta has been shown to be a highly problematic measurement in so far as high beta has not consistently equaled high returns. A finance number cruncher type person told me recently that beta has started to work again for the first time since the 1970s! That's great I suppose, but what if it stops working again.
What I do like about Beta is that it shows an area where a lot is going on. So why the high betas?
What are the barriers to entry of these types of business. Can these companies expect new competition down the road? Health care seems to have all sorts of obvious regulatory barriers.
Business rating agencies that gain traction also seem to be able to gain barriers to entry. If the business model is set up correctly, they also have a built in strong arm tactic for getting money from the people they regulate.
I think health stocks (both Health Care and Research) are the way to go. I think most people would agree that people would pay almost any amount of money to be cured of a deadly disease. Also with an already ageing population Health Care is becoming more and more important. Good article. It has put a few stocks on my radar.
Post a Comment