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Stock Strategist

Democrat-Proof Health-Care Stocks

Despite changing political winds, we're still bullish on these five firms.

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Several members of the incoming Democratic Congress have listed health-care reform as a top issue. Not surprisingly, the party's new position of power has struck fear into the hearts of many health-care investors; the Amex pharmaceutical and biotechnology indexes were down roughly 4% and 2%, respectively, over the two days following the election. With the Medicare Trust Fund poised for bankruptcy during baby boomer retirement, many Democrats are eager to give the government more control over the drug industry by facilitating direct negotiations over drug prices and a pathway for the approval of generic biologics. While some investors have clearly been discouraged by the prospect of more government control, we think there are several health-care stocks that are well-shielded from any potential Democrat-initiated legislation.

GlaxoSmithKline PLC  (GSK)
Business Risk: Average
Economic Moat: Wide
More than half of this U.K.-based firm's pharmaceutical sales occur outside the U.S., creating international exposure that buffers Glaxo from U.S. regulatory changes. Vaccine development, widely supported by Democrats, is an important part of Glaxo's product portfolio and strong pipeline. The firm's sizable consumer health-care business provides additional income diversification. From Heather Brilliant's  Analyst Report: "GlaxoSmithKline has amassed an impressive lineup of pharmaceutical offerings. While the firm has several blockbusters in its portfolio, its revenue comes from a wide variety of drugs, insulating it from the generic competition risks that most of its competitors face."

Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.