Heallth care stocks of all sorts - drug makers, medical equipment suppliers, hospital operators - held on Tuesday morning to gains achieved on Monday after Obamacare squeaked through the House. This would have surprised investors who expected passage of a health care overhaul bill to put a damper on these sectors, but the rally makes sense to one portfolio manager with a strong record of finding value.
Tom Forester, manager of the Forester Value Fund, said that the rally reflects the removal of much of the uncertainty that has held down health care stocks for months as the debate proceeded tediously and unpleasantly through Congress. Forester, whose fund gets the top rating, five stars, from Morningstar, said he was anticipating such a reaction, had planned for it and expects to be able to profit from it.
"I've been overweight health care for quite some time," he told MoneyWatch. "I've been surprised at how long this has been dragged out."
It also hurt the returns of his fund. Forester Value has dramatically lagged the Standard & Poor's 500-stock index for the last year. Over a decade, however, it has spectacularly beaten the benchmark.
The weakness of the health care sector means that "most of these stocks are dirt cheap," he said. Large drug makers especially have been beaten up, and they should be among the biggest beneficiaries because of the perceived role of their products in keeping costs down (better a pill for what ails you than a stretch in the hospital, the thinking apparently goes).
Bristol-Myers Squibb (BMY) is Forester's top pick among the drug manufacturers. Two others that he likes and finds particularly cheap are Pfizer (PFE) and Eli Lilly (LLY). All three were up strongly Monday morning.
Pfizer and Lilly "have some big drugs coming off patent, but they're trading at just abysmal valuations," he observed. "Just getting a break from the acrimony will help these stocks."