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.

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

Rate Their Stock Picks:

Which stock do you like best?

Lawson: HealthSouth

Rice: Manor Care

Weakley: HCA

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