By Kate Gibson
As U.S. stocks seesawed before a nearly flat finish Wednesday,
so did the health-care sector, with medical-device makers advancing
and large insurers falling as investors weighed the impact of Sen.
Edward M. Kennedy's death on prospects for reforming the U.S.
health-care system.
"You could argue the passing of Kennedy may expedite things in
Congress, given the sympathy for a cause very near and dear to
him," Michael Sheldon, chief market strategist at RDM financial
Group, said of Kennedy's death early Wednesday morning. .
"I know there will be a lot of the sentiment 'Let's pass this
for Ted.' But, practically speaking, it's going to be tough," said
Hugh Johnson, chairman of Johnson Illington Advisors.
"It's not just that he's been for universal health care, it's
not just that he's for being able to change jobs and preserve your
health care coverage, and it's not just that he's against insurance
companies denying coverage because of pre-existing conditions. It's
that when it comes to getting stuff done in Congress, he was very
important," said Johnson.
On Wall Street, industrials and materials paced losses and
telecommunication service and consumer discretionary shares fronted
gains as stocks finished nearly flat. The Dow Jones Industrial
Average (DJI) gained 4.23 points to end at 9,543.52, extending its
winning streak to a seventh day in a row. The S&P 500 Index
(SPX) added less than 1 point to 1,028.12, and the Nasdaq Composite
(RIXF) also rose fractionally to 2,024.43.
Of the S&P's 10 industry groups, health care held edged
mildly lower, with insurer UnitedHealth Group Inc. (UNH) down most
sharply, losing 3.3%. The stock is up nearly 9% so far for the
year. Medical-device makers Becton, Dockinson and Co. (BDX) and St.
Jude Medical Inc. (STJ) were among the shares fronting the sector's
gains, both up about 1.5%.
Off 0.2% on the day, Tenet Healthcare Corp. (THC), an
investor-owned health care services company, is up almost 308% for
the year so far. The company disclosed in a regulatory filing this
month that it in July bought back $68 million in debt from the open
market in a move to cut its total debt and yearly interest
costs.
The sector, with a market valuation of $1.2 billion, represents
nearly 14% of the S&P 500's overall value, behind information
technology, with a market valuation of nearly $1.7 billion, or
nearly 19%, and financials, valued at nearly $1.4 billion, or
15%.
Mixed bag
"The thinking is if the government comes in and dictates
pricing, then that could be a negative for [health maintenance
organizations] which are forced to compete against the government.
On the other side of the equation, HMOs may also benefit as some of
the uninsured gain access to health care and use HMOs for
administering health care," said RDM's Sheldon.
"Health-care stocks will be up and down," he forecast, "until we
have a better idea of what legislation will be passed and
when."
Johnson believes the sector is currently one to be avoided, and
offers several reasons.
"It's a defensive sector and if this is a bull market you don't
want to own health care, along with consumer staples and
utilities," he said.
And, "under most versions of the Obama health-care plan, there
should be some pressure on prices and margins for health-care
companies, given one of the big issues here is to reduce the cost
of health care," said Johnson.
The bullish argument for health-care stocks is they're cheap,
and in most cases their earnings have been better than expected, he
added.
