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10 Health Care Stocks to Watch

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Insider Monkey) -- Health care is a fast-growing industry in the U.S.

Healthcare spending is rising at about 8% per year, with a typical American family of four spent about $18,000 on medical costs in 2010, compared with $16,771 in 2009. Between 2006 and 2010, annual medical costs increased by almost 35%.

Rising healthcare costs are not good for the patients, but those who invest in healthcare stocks will benefit from such growth. As healthcare spending and costs are rising, we believe healthcare stocks will continue to be in the portfolios of most smart investors in the future.

Below we compiled a list of 10 of the most profitable health care companies based in U.S. All companies have at least $10 billion market cap, operating margin of over 20%, and EPS growth rate of more than 10% over the past five years.

Gilead Sciences (GLD) seems to be the most profitable healthcare stock on the list above. Its operating margin is 45.84% and its EPS grew at 31.09% per year on average over the past five years.

Gilead is a biopharmaceutical company focusing on developing and commercializing human therapeutics for life-threatening diseases. In 2010, the company reported total revenues of $7.95 billion, compared with $3.03 billion in 2006. GILD has a market cap of $36B and a P/E ratio of 13.82.

There is some recent interest in Gilead from top hedge funds. Dan Loeb 's Third Point initiated a brand new $47 million of GILD over the third quarter. On the other hand Bill Miller cut his bets on GILD by 85% during the third quarter.

Biogen Idec (BIIB - Get Report) also has a high operating margin of 33.63%.

Over the past five years, its EPS grew by 53.14% on average per year. Biogen Idec is engaged in discovering, developing, manufacturing and marketing products for the treatment of neurological disorders and other serious diseases.

The company reported total revenues of $4.7 billion in 2010, compared with $2.7 billion in 2006. BIIB has a market cap of $28 billion and a P/E ratio of 24.38. It is also quite popular among hedge funds. There are 34 hedge funds with BIIB positions at the end of the third quarter. Andreas Halvorsen is the most bullish hedge fund manager about BIIB. His Viking Global had $235 million invested in this stock at the end of September. George Soros initiated a brand new position in BIIB during the third quarter as well (see billionaire George Soros ' top stock picks).

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