Analyst Rankings: Increased Payments a Plus, Nurse Shortage a Minus for Hospital Stocks

This week, in our focus on the winning analysts in each industry category from our Analyst Rankings -- Equity 2000, we profile the top analysts tracking health care facilities. Next week we'll look at automobiles. (Our last focus was on health care distributors and services.)

Health care facilities stocks had an outstanding year in 2000, with the group outperforming the S&P 500 by more than 72 percentage points. All three of our top-ranked analysts hold a positive outlook for the sector, though none expect a repeat of last year's returns.

The Winners

By name By category By firm Best stock pickers Best firms

A major factor in determining just how strong 2001 will be is whether the economy continues to slow or begins to heat up. Because it's a defensive sector, the group has benefited from the cooling economic environment. As No. 1-ranked Deborah Lawson of Salomon Smith Barney explains, "I would expect if we had a return to the go-go years of tech, that these stocks' prices would suffer at least for some period of time, and that would be a concern to investors. But as far as earnings growth is concerned, it should not be impacted by the overall economic environment."

Recent legislation in the industry, such as the Beneficiary Improvement and Protection Act (BIPA) and the Health Insurance Portability and Accountability Act (HIPAA), should mean more prompt reimbursements for hospitals. These laws, coupled with a move toward contract simplification, lead Bear Stearns' Kenneth Weakley to expect strong cash flow growth over the long term for these companies.

One negative for the industry is the shortage of skilled nurses, which has driven up labor costs, according to Lawson and Weakley. In this regard, too, says No. 2-ranked A.J. Rice of Merrill Lynch, the slowing economy could benefit hospitals and nursing homes. Maintaining that many health care workers are second wage earners, he contends that in a slowing economy "some easing of pressure on the labor expense line" could result.

Health Care Facilities

	1st Place
	Deborah Lawson Salomon Smith Barney (See Report Card)

	2nd Place
	A.J. Rice Merrill Lynch (See Report Card)

	3rd Place
	Kenneth Weakley Bear Stearns (See Report Card)

	4th Place
	Joseph Chiarelli J.P. Morgan

	5th Place
	Andrew Bhak Morgan Stanley Dean Witter

	Best Team
	Merrill Lynch

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Which stock do you like best? Lawson: HealthSouth Rice: Manor Care Weakley: HCA