Our Favorite Health-Care Safe Havens
These eight health-care stocks have what it takes to weather the storm.
With all of the financial fallout from the credit crisis reverberating across the markets, we're sympathetic to investors who may feel like they need anti-anxiety medication before looking at their portfolios. However, before succumbing to any instinct to liquidate holdings and stash the cash under your mattress, we'd suggest taking a look at some very high-quality companies in the health-care arena--a sector that has historically been less directly tied to the same macroeconomic factors that are now buffeting many sectors. We're highlighting a host of health-care companies that have the financial stability to withstand the near-term financial crunch, as well as moats that we think will allow these firms to earn economic profits into the longer term. Some of these companies are already attractively priced, and we'd snap up shares of the others if they are pushed too far by Mr. Market.
There are a few things to keep in mind when culling through the health-care firms. Most companies in this sector enjoy robust balance sheets thanks to two different dynamics. When it comes to established drug, biotech, and medical-equipment companies, many are sitting on hefty cushions of cash and equivalents because they tend to generate cash quickly. For example Amgen (AMGN) and Johnson & Johnson (JNJ) have stashes of $8.5 billion and $13 billion, respectively. On the other side of the spectrum, highly risky development-stage companies that do not yet generate cash flow typically rely on equity financing because lenders are usually not very eager to lend on the basis of a pipeline candidate that might not receive regulatory approval. There are plenty of health-care companies, both big and small, that have enough cash to let them ride through the next 12 to 24 months.
Debbie Wang has a position in the following securities mentioned above: BIIB, AMGN, PFE. Find out about Morningstar’s editorial policies.