TAKING STOCK: Health stocks for investment club


Dear Mr. Berko:

In late 2010, three of us did some research and recommended our investment club buy 200 shares of Medivation at $19. We did, and in September 2012, it went to $100 a share and split 2-for-1. Now we own 400 shares, and the stock is way over $100 again. The three of us who recommended the stock think it should be sold and the proceeds should be used to buy 200 shares of Universal Health Services. But half the club members think Medivation will split again and don't want to buy Universal Health Services because they think government cost controls will hurt its earnings. We voted to ask for your opinion, which the club will accept.

-DZ, Wilmington, N.C.

Dear DZ:

Fine! If something goes wrong, I'm the scapegoat! That's why I get the big bucks.

But congratulations on that sweet $48,200 gain in Medivation. Investment clubs are always good social opportunities to drink beer, chew a pizza, learn a little about the market and have some fun. Some clubs that have been around for years have serious and dedicated members, impressive portfolios and significant gains. But all clubs are good learning experiences. Unfortunately, membership in the investment club scene has been fading during the past 15 years. Today investors demand fast profits rather than long-term growth. BetterInvesting, the organization formerly known as the National Association of Investment Clubs, reports that only a minority of clubs are profitable.

Wall Street seems to enjoy frivolous love affairs with numerous biopharmaceutical stocks, few of which have produced any marketable products and most of which are black holes, relentlessly sucking billions from deep-pocket investors. Medivation (MDVN-$129), a biopharmaceutical company with 488 employees, is one of the exceptions that made it big. But big may only be temporary. Because I subscribe to the "bird in hand" club and recognize that selling is a more complicated skill than buying, I recommend taking the profit. This San Francisco-based company, with a ripe market cap of over $8 billion, has only one commercial success. It's called Xtandi, a drug used in the treatment of (and this is a tongue twister) metastatic castration-resistant prostate cancer progressing after chemotherapy. Xtandi generated revenues of $630 million last year. That's impressive because a typical prescription of 240 capsules costs $17,000; though, with a special coupon from God, it can cost as little as $8,500. But for MDVN, those numbers translated to net income of $2.68 a share last year. This year's revenues are expected to exceed $850 million, and several analysts believe that MDVN will earn between $3.40 and $5.25 a share in 2015. MDVN focuses on the development and commercialization of novel therapies to treat diseases, but again, it is just a one-drug company. MDVN's niche is research into other diseases for which few treatment options exist, but none of this new research is close enough to warrant owning the stock at $129 a share.

Well, yipsee doodle dandy, I like your selection of Universal Health Services (UHS-$119), an $8.5 billion health care management company that has doubled revenues since 2005 and grown net income over fivefold, to a projected $6.70 a share this year. UHS, with 66,000 employees, owns and runs 24 acute care hospitals and 193 behavioral health centers while joyfully sucking at the teat of government-mandated health care spending. So as government expands coverage and participation in workers' compensation, Medicaid, Medicare and other programs, UHS may still grow earnings at a greater pace than it grows revenues. Medical care isn't a competitive business. Certainly, the language and billing systems are purposefully obscured. And because consumers can't shop hospital costs, physician charges or therapy treatments, those costs will continue their inexorable rise. In the meantime, Obamacare's expanded rules and regulations (electronic health records, new coding, incentive programs, etc.), plus unlimited political contributions by vested interests, guarantee higher spending and pricing each year. Last year, Americans spent $3.7 trillion on health care, and that's expected to exceed $6.8 trillion by 2020. And UHS' share price, which has increased over fourfold since 2009, may be a big winner for your club before 2020. Sell MDVN, and buy UHS.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Tue, Apr 14, 2015