Mr. Solow: At CJS Securities we are all generalists. We don't have industry analysts in a particular sector, and we focus on undercovered small- to mid-cap names. With that said, I happen to have a background in health care equity research, so my coverage list is skewed towards the sector. Before coming to CJS in 2006, I worked on the buy side for seven years as a Portfolio Manager/Analyst for a Luxemburg-based publicly traded mutual fund, which focused on pharmaceuticals, medical products and supplies. Of the 15 names on my current coverage list, seven of them fall under the broad health care umbrella spread across multiple subsectors. I follow Hanger Orthopedic Group, US Physical Therapy (USPH) and Assisted Living Concepts, which are service-oriented-type names. Bio-Rad Laboratories (BIO) and Meridian Bioscience are focused on clinical diagnostics and life science research, while Haemonetics and Analogic (ALOG) fall into the medical equipment category. We look for companies that have a strong financials and are well positioned in industries with longevity. In that sense, it's very difficult to avoid health care, considering its compelling macro trends.
TWST: What is the status of the health care sector?
Mr. Solow: We expect a wide variety of favorable trends to continue to drive multiyear growth across the health care spectrum. These include an aging population, rising life expectancies, improved access to medical care within the U.S. and abroad, a growing emphasis on physical health and an increased focus on reducing costs. The companies we follow all fit into these multiple and growing needs for health care.
We believe some type of health care reform is inevitable, but it's hard to say exactly what it will look like. While we have seen the initial outline from the Senate and House proposals, what passes final legislation and how that looks five years from now is difficult to assess. When you are adding tens of millions of people to coverage, you should see an initial benefit, which should outweigh any increased costs/taxes. Any level of health care reform will likely expand volumes and benefit most parts of the sector, especially in the first two to three years of implementation. In the longer term, as the realities of rising costs related to universal coverage set in, increased caps and price pressures in certain areas could potentially offset the benefits of increased volumes.
Tickers included in this excerpt: ALC, HAE, HGR, VIVO
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