President Obama’s Medicare plans did a number on health-care stocks these past couple of weeks. Drug companies like Eli Lilly and Merck , as well as medical-device makers like St. Jude , were all under pressure because Wall Street feared the worst. This once-classic recession-resistant sector – medicine is needed regardless of the economic situation – fell out of favor almost immediately.
But not every stock deserved such harsh treatment. That’s because there are at least a couple of companies that deal in health-care staples rather than expensive drugs or MRI machines. Becton Dickinson and Baxter get 58% and 37%, respectively, of their revenues from basic hospital supplies. Think lost-cost consumable items that are constantly replenished. They’re the kind of medical spending about which Obama’s not concerned
Cramer called BDX and BAX the Wal-Marts of health care. They sell the bare necessities. Products that even the most cash-strapped hospitals will keep buying. Fifty-three percent of Becton Dickinson’s sales comes from hypodermic syringes and needles, scalpels and prefillable drug delivery systems. Thirty percent comes from diagnostics. Only 6% of BDX is exposed to equipment sales that could suffer during an Obama administration. So it would be hard for the president to hurt this company.
Baxter’s biosciences unit, which accounts for 44% of sales, makes treatments for hemophilia, biopharmaceuticals for immune deficiencies and cancer, vaccines and biosurgery equipment. These are largely in-hospital treatments, a marked difference from the high-cost drugs Obama is targeting. Baxter also runs a medial-delivery unit that makes IV solutions, critical-care injectable drugs and products for anesthesia, nutrition and oncology. That’s worth 37% of sales, and the renal care division accounts for 19%. The dialysis products made by that latter division are yet another health-care area that Obama won’t touch.
Both companies recently reported better-than-expected quarters, though BDX was light on revenues, which killed the stock’s momentum. But Baxter and Becton Dickinson are looking forward to a good 2009.
Right now BDX and BAX are trading at their historical multiple lows – what Cramer called the Obama discount – giving investors a great entry point. And the consistent, steady growth these companies offer couldn’t come at a better time.
Cramer's charitable trust owns Wal-Mart.
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