The Real Story in Health Care
If there's one thing Cramer can say about Obama's health care speech it's to forget about it. That's right... Cramer says that if you are going to make money, you need to ignore the President's upcoming health care speech. But why?
Everybody’s trying to game healthcare reform, says Cramer, but he thinks this focus is wrong for two reasons. First, the President's agenda doesn't have the influence it used to. Second, Cramer sees a much bigger health care story on the horizon that should be getting your attention instead of the President's headlines.
First thing's first. Why is Obama not so important to health care? Because he's going to lay out his strategy, but reality depends on the plan getting 60 votes in the Senate. Because the President wants to implement change, he will have to compromise, so Cramer doesn't expect him to go too radical with his reforms. Cramer expects some cost cutting and other small changes but nothing that will affect the status quo too significantly.
In this case, Cramer suggests looking into health care stocks which have dipped going into the speech on worries of health care reform in general, because these stocks are not in the danger that some people perceive them to be. In HMO's, Cramer specifically likes Wellpoint, for pharmacy benefit managers he likes Medco Health and Express Scripts and for device makers, he likes St. Jude and Boston Scientific .
But all in all, Cramer encourages against gaming health care reform, as all-too-radical reforms are probably not on the horizon. In order to play health care you have to go after the big health care stories. What is the biggest health care story out there? Swine Flu.
Take an anecdote from Cramer himself, who was warned about Swine Flu after dropping his daughter off at college. This could possibly be bigger than any realistic reforms implemented by the administration.So what's the play?
In keeping with the medical theme, Cramer want to do no harm. Flu cases disproportionately hit the young and the elderly, so HMOs that have lots of Medicare advantage exposure could be in trouble. That is one of the reasons Cramer prefers Wellpoint, which gets less than 10% of its earnings from Medicare advantage, compared to other companies which derive between a quarter and a third of its earnings from the government. Flu cases cost big money, and the more reliant on Medicare a company is, the more painful it could be in this situation.
But don't be fooled by the hype, says Cramer. You can't be buying into speculative biotech names that have shot up by several hundred percentage points based on swine flu treatments - like BioCryst and Novavax - that don't yet have any approved products. Swine flu hype, not swine flu, says Cramer.
So who’s the swine flu winner? Cramer points to Gilead. The company gets about 80% of its sales from its HIV franchise, but it also earns royalties on sales of Tamiflu, which has been relatively effective in combating swine flu. Cramer points out that this is an interesting situation, as these royalties are on a one quarter lag, which means you can buy into the swine flu numbers with this in mind. The more vaccine that is sold, the higher percentage royalties. With the country on the verge of another strong flu year and with swine flu thrown into the mix - not to mention the growing stockpiles of Tamiflu - Cramer sees Gilead's stock moving higher on this entire situation.
The bottom line: Don't gamble on the President's health care strategy. Instead, invest in whatever has a chance of beating swine flu, which means Gilead.
Cramer's Charitable trust owns Gilead and Express Scripts.
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