Taking Stock: Health stocks for the long term

By Malcolm Berko

Dear Mr. Berko:

Our first grandchild was born several weeks ago, and we’re thrilled.

We want to invest $30,000 for his future in some stocks that he can keep forever and not have to watch. I remember that about 25 years ago (we’ve been reading your column for 30 years), you recommended a portfolio of 10 medical stocks, which you said did not have to be watched, and said they would do better than the Dow Jones industrial average if all the dividends were reinvested.

I think two of the stocks were Amgen and Biomet. Could you please put together a list for us?

LD, Jonesboro, Ark.

Dear LD:

You have an excellent memory. Yes, Amgen and Biomet were two of those recommendations. Biomet was just acquired by Zimmer Holdings (ZMH). I remember those stocks well because my sister, who put $2,000 in each, enjoys reminding me that I didn’t take my own advice. And darn, I wish I had.

She still owns each of those issues, and with all dividends reinvested, the cumulative value of her 10 stocks is almost $250,000.

Meanwhile, including Amgen and Zimmer, the following medical issues are still tops on my list of compelling, nearly foolproof, long-term investments: Becton, Dickinson and Co. (BDX), Baxter International (BAX), C.R. Bard (BCR), Bio-Rad Laboratories (BIO), Varian Medical Systems (VAR), Medtronic (MDT), The Cooper Companies (COO) and Cardinal Health (CAH).

The Affordable Care Act has opened Washington’s money spigots to the max.

And because health care spending is perceived to be free, it has become the fastest-growing sector of our economy.

In 2011, we spent $2.8 trillion on health care, and in 2015, we’ll spend $3.8 trillion, or about 22 percent of our $17.4 trillion gross domestic product. In the coming 10 years, health care spending may exceed $9 trillion, or 27 percent of our expected GDP.

Sloppy accounting, purposeful waste, clever fraud, intentional abuses, overcharges for X-rays and tests, billings for procedures never performed and supplies never received, and accounting systems that maximize billing charges will cause care costs to explode.

The graft and fraud in America’s health care system will put military spending, $90 hammers and $700 toilet seats to shame.

Meanwhile, crazy, wild companies with names you’d never recognize will be making huge bucks, and their shares will be testing new highs.

Risky investments in ArQule, Sangamo BioSciences, Ardelyx, MacroGenics, Ignyta, Agenus, Insmed, Dynex Technologies, CorVel, Landauer and other companies with strange-sounding names will become vacuums for the swirling gold dust in the health care air. Too insanely risky for your grandson.

The original list of 10 issues will still continue to do well, and there are compelling reasons to continue owning each of them.

However, I’m as certain as sunshine and blue skies that there are speculative opportunities for your grandson with the following volatile stocks: Cerner, Genmab, Kite Pharma, Relypsa, Egalet, Alkermes, Intrexon, Versatis and Endocyte.

And there are five no-load Fidelity funds that own these issues, as well as others, and each of these five funds has prospered uncommonly well.

So I’d recommend you invest $6,000 in each of the following:

—Fidelity Select Biotechnology Portfolio (FBIOX-$223), a $9.2 billion fund, has one-, three-, five- and 10-year total returns of 38 percent, 45 percent, 34 percent and 11 percent, respectively.
—Fidelity Select Health Care Portfolio (FSPHX-$219), with $7 billion, has one-, three-, five- and 10-year total returns of 40 percent, 36 percent, 28 percent and 15 percent, respectively.
—Fidelity Select Medical Delivery Portfolio (FSHCX-$83) is a small portfolio ($900 million) with total returns of 28 percent, 22 percent, 21 percent and 15 percent.
—Fidelity Select Medical Equipment and Systems Portfolio (FSMEX-$39) is a $1.6 billion portfolio with total returns of 26 percent, 24 percent, 19 percent and 11 percent.
—Fidelity Select Pharmaceuticals Portfolio (FPHAX-$21), with $1.5 billion, has total returns of 32 percent, 27 percent, 24 percent and 15 percent for the one-, three-, five- and 10-year periods.

If the total return on those funds averages 12 percent over the next 25 years, that $30,000 would grow to $510,000 when your grandson is 25.
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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