The Fundemental Changes During the Obama Era – What to buy?

If you don’t believe government policy can change the tides of the market, then you should learn your history. Throughout the history, government policies, fiscal, spending or tax related, all have a direct impact on the market. It’s one of the fundamental market movers.

And if you believe health care reform will pass during the Obama administration, then you can bet there will be fundamental changes to the market. And if you believe the public options is out of the door, which seems to be probable according to latest debate, then I have to say health cares and pharmaceuticals will be the ultimate winners. All for the simple fact of increasing demand and reduce cost. Even if there will be price control, hopefully not like the regulation on utilities, the total volume, per profit x demand, will go up.

Between health cares and pharmaceuticals, I prefer the former. In health care, you use client’s premium and funds to invest. It’s like getting a free loan. Ever wonder why Buffett are heavy into insurance? In pharmaceuticals, it is more speculating than health care. Big Pharms need to constantly build new products to keep its pipeline full. One drug can make or break a small company. Since no one can predict what drug a company can produce 10 or 20 years down the line, a company need to keep rebuild its moat, so I consider it as less of an investment over the long term than health cares.  

Okay if you are still with me, let’s now consider the best breed in the health care sector. Among: WLP, UNH, HUM,  AET, I think WLP and HUM have better financials. And WLP has more quantitative and qualitative advantages. I do have one concern with WLP and that is the heavy insider sales in the past months.

The verdict: if you believe the health care reform will pass without the public options, then buy WLP. And hopefully you have an opportunty to buy below the 200 days moving average.

Heck, even if you don’t believe anything, you can still buy WLP, because it’s a bull market. And the chance of you go wrong in the long term is much slim during this post-Lehman recovery era.