Two Bets on Healthcare Reform

03/27/2017 2:50 am EST

Focus: HEALTHCARE

Tony Daltorio

Editor, Investors Alley Premium Digest

Don't be scared by headlines over healthcare reform; my bet is that o matter what sort of reform finally come out of Congress, the winners will be the companies in the healthcare sector. Here are two worth considering, suggests Tony Daltorio, editor of Investors Alley's Premium Digest.

The first stock is the beaten-down big pharmaceutical company, Bristol-Myers Squibb (BMY), which has lost over $37 billion in stock market value.

Although well off its 52-week low, it is still down nearly 12% over the past 52 weeks. On the plus side, it does offer a decent 2.75% yield.

Investors have dumped pharma stocks in general thanks to Trump tweets on getting drug prices down. But they are forgetting that just a few weeks ago Trump said his Administration would drastically cut the length of time it takes for regulatory approval of new drugs.

That will be a godsend to the industry. Currently, on average, it takes 10 years to develop a new drug and get FDA approval. On average, the cost runs $2.6 billion.

Bristol-Myers has never recovered from its lung cancer drug Opdivo being found to be less effective than chemotherapy. But Wall Street is ignoring the fact that the drug remains as a treatment for other cancers.

It should still earn roughly $9 billion annually for the company. And Opdivo is just one drug in its portfolio of oncology and other therapies.

Maybe that fact and the still low stock price is what attracted activist investor, Carl Icahn. I like the idea of investing beside him and collecting a decent dividend while something good eventually happens on the corporate front.

The second stock is a REIT, Ventas (VTR), with its juicy yield in excess of 5%. The company is one of the largest U.S. healthcare-focused REITs, with nearly 1,300 senior housing and healthcare properties in the U.S., Canada and the U.K.

It considers itself the "premier provider of capital to leading healthcare and senior living companies and university-based research institutions."

Ventas has a great portfolio of best-in-class businesses. I do not expect these operations to be affected much by any Obamacare reform. So the company's policy of steadily raising dividends should stay intact.

Ventas grew its dividend by 6% in 2016. Similar growth should happen again in 2017. And if the clouds lift from the sector, the stock gain of 7.77% over the past 52-weeks will likely get a boost too.

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