Income Expert's Healthy Picks

03/20/2015 10:00 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Dividend investing expert Chuck Carlson sees long-term opportunity in the healthcare sector; here, the editor of DRIP Investor discusses the long-term trends supporting the overall industry, his favorite domestic health sector play, and some top picks among global health industry issues.

Steven Halpern:  Joining us today is dividend reinvestment expert Chuck Carlson, editor of Drip Investor. How are you doing today, Chuck?

Chuck Carlson:  I’m fine. Thank you, Steve.

Steven Halpern:  Well, thank you for joining us. Today we’re going to talk about the healthcare sector and you suggest that a healthy investment portfolio should have solid exposure to healthcare stocks. Could you expand on your reasoning?

Chuck Carlson:  Sure. I think when you look at the sectors out there, healthcare still has some of the best longer-term growth potential there. You have more people that are coming into the healthcare system, partly as a factor of the Affordable Care Act.  You have had this new product development that has surged really over the last 12 months.

Indeed, in 2014, the FDA approved 41 new novel drugs, which was the highest number in the past decade and that always generates increased growth in both top and bottom lines for healthcare companies.  

Finally, as emerging markets and developing countries continue to grow their middle class, there’s more dollars there to fund healthcare, which makes it really a global growth story for healthcare.

Steven Halpern:  Now, also, demographics play a role in this as well. Correct?

Chuck Carlson:  Well, that’s a huge thing. I’m glad you mentioned that. I mean, you know, every day in this country roughly 10,000 people turn the age of 65 and they’ll do so for the next 15 years, so, you’re right, the graying of America, if you will, is an important driver because as we get older, we need healthcare.

Steven Halpern:  Now, within the healthcare sector, you are particularly bullish on the drug store market and you pointed to CVS Health—with the symbol (CVS)—as well as Walgreens Boots Alliance—with the symbol (WBA).  Could you share your thoughts on these two drug store players?

Chuck Carlson:  Sure.  They are the two major players in the US and both of them have demonstrated pretty consistent growth records and those earnings growth and revenue growth have translated to really nice dividend growth for these two so they’re nice dividend stocks as well as growth stocks.  

CVS has a real nice play in terms of its drug store business, but it also is a major player in the pharmacy benefits management area with its Caremark division.  

Walgreens provides a global growth play via their recent merger with Boots Alliance, so they have a huge representation in drug store chains in more than 25 countries, so it’s not just a US growth story for them.  

I think both will benefit from more people coming into the healthcare system via Obamacare and thus more needing prescription drugs, so there are two solid ways to play healthcare.

Steven Halpern:  Now, in your latest research report you also highlight two issues that you suggest deserve special mention and those are C. R. Bard—with the symbol (BCR)—and Omega Healthcare Investors—with the symbol (OHI).  What’s the attraction to these stocks?

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Chuck Carlson:  Well, both stocks are interesting from the standpoint, Bard has kind of reignited its revenue growth and I think that’s always a positive for stocks where you have stocks that are kind of a new growth trajectory from a revenue standpoint, so that’s one of the reasons why Bard is attractive.  

I think Omega Healthcare Investors represents a different way to play the healthcare sector that investors may not be thinking about. Omega Healthcare is what’s called a real estate investment trust where they own properties and mortgages on healthcare facilities such as assisted living facilities, specialty hospitals, and skilled nursing facilities.

So it’s a different way to play kind of this continued growth in healthcare and it provides a real nice yield as many REITs do, so they’re different; you know, what I’m trying to do is get people to think a little bit differently about how to invest in healthcare without simply just saying, “Okay, let’s go out and buy a drug stock.”

Steven Halpern:  You also emphasize that healthcare is not just a US growth story and suggested investors also consider some healthcare exposure on a global basis via ADRs. Could you explain that?

Chuck Carlson:  Sure. There are a number of foreign-based companies that offer interesting opportunities for US investors and you can buy those stocks via what are called their American Depository Receipts (or their ADRs).  

An ADR is basically a vehicle by which foreign companies have their shares listed on US stock exchanges, so you can go buy a company, for example, such as Shire PLC, the symbol (SHPG).  

Shire, even though it’s based in Ireland, its ADRs trade just like common stocks on the US exchanges and Shire is an interesting company.  

They have a strong focus in treating attention deficit hyperactivity disorder or commonly called ADHD. The company is adding to its business via takeover of NPS Pharmaceuticals.  Very interesting stock and it’s one that we like quite a bit.

A second stock that’s kind of a nice way to play the foreign markets is a company called Novo Nordisk, the symbol (NVO).  

It’s a company based in Denmark and Novo Nordisk is one of the preeminent drug companies treating diabetes, which is becoming, unfortunately, a global epidemic of sorts and this is a company that is a major player in that space and should continue to show pretty good growth because of the growth in diabetes throughout the world.

Steven Halpern:  Now, your expertise is well known within the dividend reinvestment plan area, so I would just ask are the companies that you’ve mentioned, are these ones that would qualify for a long-term dividend investor looking to reinvest the dividends into these positions and build long-term positions?

Chuck Carlson:  Yes.  Every one of the companies that I’ve mentioned offers a dividend reinvestment direct purchase plan where any investor can make even their initial purchases of stock directly from the company, or an agent of the company, and that would include the two foreign companies as well.

So, these are a nice vehicle for individuals that are looking to invest long-term, that want to deal directly in amounts that make sense for their own pocketbook, and to be able to have a growing dividend stream so that they can reinvest back into the stocks.

Steven Halpern:  Well, we’re always excited to talk to you. Thank you for sharing your thoughts today.

Chuck Carlson:  Well, thank you, Steve.

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