4. Stay in Biotech for huge growth potential

Historically, Biotech has offered some great returns and although it may contradict my thoughts on cheaper medicines, biologics are not in the United States and will not be for many years to come. Why? The FDA is understaffed and underfunded and simply does not have enough time to efficiently go through the backlog of applications. Adding biologic applications will only increase the time it takes for additional approvals and hurt future profits of firms since they cannot operate effectively. The areas within Biotech that I feel will be the best investments are in those companies that research and manufacture drugs in oncology and HIV/AIDS. Biotech firms also show pretty strong pipelines, as opposed to Big Pharma.

• Firms to look into: Gilead Sciences (GILD: 50.30, 0.00 (0.00%)) for penetration within the HIV/AIDS area and also has the best ratios within the industry. Genentech (DNA: 82.55, 0.00 (0.00%)) because of their strong pipeline and oncology drug portfolio

5. DIVERSIFY

Most importantly, remember to diversify your investments across many sub-sectors. Pick those equities that offer both value (maybe Pharma) and growth (perhaps Biotech). Buy into equities that are small-cap (Contract Research Organizations) and those that are large-cap (Biotech and Medical Instruments & Supplies). Diversifying your portfolio also creates some natural hedges. For example, by having an overweight in Biotech and Generics, specifically, Teva in your portfolio, you are set up quite well to see the flows from the branded version turning to generic where the margins are still quite high. For more information on Teva, check out their last earnings recap from November. I am definitely looking forward to see what occurs in Healthcare in 2009 and feel that this upcoming year will really shape the future of many companies.

-Ryan Savitz

Disclosure: The mutual fund that the author is associated with is long GILD, DNA, TEVA, JNJ and BDX.