Health-Care Stocks Unshaken by Clinton's Reform Plan

By , Staff writer of The Christian Science Monitor

WALL STREET is taking a new interest in key sectors of the United States health-care industry, including extended-care facilities, health maintenance organizations (HMOs), and biotechnology companies.

This multibillion-dollar industry - with the exception of a few sectors such as pharmaceuticals and equipment manufacturers - is not yet experiencing any general difficulty in the stock market as a result of President Clinton's proposed reform plan.

Part of the positive momentum surrounding selected health-care stocks is the favorable interest in smaller company stocks - the so-called ``small cap'' market. The over-the-counter market, as measured by the Nasdaq Composite Index, is now leading the overall stock market. With interest rates dipping slightly last week, the Nasdaq composite continued to set new highs.

Recommended: Could you pass a US citizenship test?

``The broad market is quite a bit stronger than the `blue chip' market, as measured by the Dow,'' says Gene Jay Seagle, a vice president with Gruntal & Co. Inc., a New York investment house. Investors, Mr. Seagle says, are scrambling to buy growth-oriented, smaller capitalization stocks which tend to include many health-care companies. The market has discounted many earlier concerns about the potential adverse impact of reform.

With talk of health-care reform saturating the airwaves these days, it is important to be aware of the industry's role in the overall economy and in the stock market, analysts say.

``There are going to be a lot of new people coming into the US health-care system, up to 37 million people who currently have no health insurance,'' says Cynthia Latta, an economist with DRI-McGraw Hill, an economic consulting firm in Lexington, Mass. ``That's going to add a lot of money to the system, and there will be a lot of companies and groups profiting from that change.''

It is still uncertain just what kind of reform plan will finally emerge from Congress next year, and how it will affect the economy. ``We are scratching our heads trying to put all this into the computer,'' Ms. Latta says. ``It is reasonable to assume that many new jobs will be created, since we will add so many people to the system. At the same time, with consolidation and presumed efficiencies, there will be some losses of jobs.''

About 14 percent of US gross domestic product is health care related, up from a little more than 10 percent a decade ago, Latta says. That percentage is expected to continue to grow.

About 10 percent of the stocks on Standard & Poor's 500 index are health care related. More small companies are linked to biotechnology, research, and extended care. Roughly 1 in 3 new stock offerings involve health-related issues. Most large mutual fund companies now offer health-related funds.

``It looked like the winds were being taken out of the sails of the health-care sector from 1992 into early 1993,'' as speculation about the Clinton reform plan began to emerge, says Dennis Jarrett, chief market analyst for Kidder Peabody. ``But now ... it is clear that there will be many companies that can do very well.''

Mr. Jarrett says he sees the biotechnology sector as being a potential winner. Some HMOs will also benefit, he adds. About 20 percent of Americans are now members of HMOs and that number is expected to double by the end of the decade, experts say.

Some biotechnology stocks have been having trouble this year. But overall revenue is up as biotechnology companies rush new products to market.

Selected nursing home and extended-care companies, as well as hospital management firms, also are expected to benefit from changes initiated by the Clinton plan.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...