Obamacare will put pressure on health insurers, leading weaker companies to merge or vanish, says Andrew Acker, portfolio manager of Janus Global Life Sciences (JFNAX). But as competitors struggle, big national companies are likely to gain market share and thrive.
Acker owns Aetna (AET - Get Report), a leading insurer. He says that the stock has been beaten down to attractive levels. Acker concedes that it could become less profitable to insure individuals under Obamacare. But Aetna mostly provides coverage for large employers. That business should not suffer under the new legislation. "Aetna's total exposure to healthcare reform is much smaller than people think," he says. "Only 12% of the total book of business involves covering individuals and small businesses."
This year Obamacare is scheduled to charge pharmaceutical companies $2.8 billion in fees, which are imposed on sales of drugs to federal health programs. That will hurt industry profits, but the damage will be limited at many companies because they have growing sales overseas where there are no special fees. Acker of Janus particularly likes companies with innovative products that serve global markets. One holding is biotech powerhouse Gilead Sciences (GILD - Get Report). The company is bringing out a new treatment for Hepatitis C, a disease that affects 170 million people worldwide. "We think that the drug will have a large market that is ready to explode," says Acker.
Obamacare will not help nursing homes, says Erin Xie, portfolio manager of BlackRock Health Sciences (SHSAX). The expanded coverage will serve mostly younger people who do not require nursing home care. While Xie is staying away from nursing homes, she has stakes in large pharmaceutical companies. The stocks were depressed because of concerns that patents on blockbuster drugs would expire, but many expirations have already occurred. The stocks are poised to rebound because they have rich dividends and solid balance sheets. "The price-earnings ratios have been low, but now we are going to see some multiple expansion," says Xie.BlackRock owns such blue-chip pharmaceuticals as Pfizer (PFE - Get Report) and Johnson & Johnson (JNJ - Get Report). Follow @StanLuxenberg This article was written by an independent contributor, separate from TheStreet's regular news coverage.