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Before Jumping Into A Single Health Care Stock Consider This ETF

 March 25, 2010 07:23 AM
 


"The healthcare sector has never seen anything like this and neither has the American public. After months of political wrangling, the Affordable Health Care for America Act was signed into law by the President. The Act will extend health insurance coverage to roughly 30 million Americans without it. The new law would also require most Americans to purchase health insurance coverage and it would provide subsidies for private healthcare to low and middle income families.mIn the meantime, as the legislative details on the measure are worked out, investors are asking what does it mean for the health care sector? Is it doomed," Ron DeLegge Reports From ETF Guide.

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DeLegge goes on to say, "It's still too early to project the ultimate impact of the new health care bill on the overall health care sector. For example, with health coverage becoming a requirement, health insurers will have more customers, but they will also be forced to accept higher risk clients with pre-existing conditions. Additionally, health insurers will face new competition from government subsidized plans. According to New York-based AltaVista Research, health care stocks inside the S&P 500 are trading at a discount to the market. Based upon 2010 earnings estimates, health care stocks currently trade at a P/E ratio of 11.8, which is a discount to the S&P 500's 14.1 multiple. Earnings per share (EPS) growth are expected to rise 7.5% based upon 2010 estimates."

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"A radical transformation of the healthcare sector is now underway. There will be losers and winners. And attempting to decipher which individual companies will lose and which ones will win is mostly a loser's game. Instead of trying to handpick health care stocks, diversified health care ETFs are a smart way to capitalize on the evolving dynamics within this industry sector,"  DeLegge Reports.

DeLegge makes a great point on how difficult and risky it is to handpick health care stocks, which is why ETFs offer great way to play the new historic reform.  We have put together some information on one of the most popular health-care ETFs. The Select Sector SPDR Health Care ETF (XLV) has great liquidity and has some of the biggest names in the industry in it's holdings.  See the details below:

The investment (XLV) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Health Care Select Sector Index. This fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. It has also adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in a its policy or its underlying index. It is non-diversified.

Components and weightings as of 3/19/10.

 NameSymbolIndex Weight
1JOHNSON & JOHNSON(JNJ)13.90%
2Pfizer Inc.(PFE)10.59%
3Merck & Co. Inc.(MRK)9.20%
4ABBOTT LABORATORIES(ABT)5.46%
5Amgen Inc.(AMGN)4.57%
6Medtronic Inc.(MDT)3.86%
7Bristol-Myers Squibb Co.(BMY)3.48%
8Gilead Sciences Inc.(GILD)3.36%
9UnitedHealth Group Inc.(UNH)3.11%
10Eli Lilly & Co.(LLY)2.85%
11Baxter International Inc.(BAX)2.81%
12Medco Health Solutions Inc.(MHS)2.45%
13WellPoint Inc.(WLP)2.30%
14Celgene Corp.(CELG)2.29%
15Express Scripts Inc.(ESRX)2.27%
16Thermo Fisher Scientific Inc.(TMO)1.58%
17Allergan Inc.(AGN)1.57%
18Becton Dickinson & Co.(BDX)1.49%
19McKesson Corp.(MCK)1.38%
20Biogen Idec Inc.(BIIB)1.28%
21Stryker Corp.(SYK)1.26%
22Genzyme Corp.(GENZ)1.26%
23Aetna Inc.(AET)1.18%
24Intuitive Surgical Inc.(ISRG)1.05%
25St. Jude Medical Inc.(STJ)1.02%
26Cardinal Health Inc.(CAH)1.02%
27Zimmer Holdings Inc.(ZMH)0.96%
28Boston Scientific Corp.(BSX)0.84%
29CIGNA Corp.(CI)0.82%
30Life Technologies Corp.(LIFE)0.75%
31Forest Laboratories Inc.(FRX)0.74%
32Hospira Inc.(HSP)0.72%
33Humana Inc.(HUM)0.71%
34Quest Diagnostics Inc.(DGX)0.69%
35C.R. Bard Inc.(BCR)0.66%
36AmerisourceBergen Corp.(ABC)0.65%
37Laboratory Corp. of America Holdings(LH)0.61%
38Mylan Inc.(MYL)0.54%
39Millipore Corp.(MIL)0.52%
40Varian Medical Systems Inc.(VAR)0.51%
41DaVita Inc.(DVA)0.51%
42Waters Corp.(WAT)0.47%
43Cephalon Inc.(CEPH)0.42%
44Dentsply International Inc.(XRAY)0.39%
45Watson Pharmaceuticals Inc.(WPI)0.35%
46CareFusion Corp.(CFN)0.35%
47Coventry Health Care Inc.(CVH)0.30%
48King Pharmaceuticals Inc.(KG)0.25%
49Patterson Cos. Inc.(PDCO)0.22%
50PerkinElmer Inc.(PKI)0.22%
51Tenet Healthcare Corp.(THC)0.20%

Chart for Health Care Select Sector SPDR (XLV)

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