Too Much of a Good Thing?

Wednesday, 17 Apr 2013 07:49 AM

By Gary Jakacky

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Heavens above, what have I done to deserve such good news? Last week sure brought smile after smile to every true libertarian and economic conservative.

First, after a brief three day selloff — accompanied by howls of "Bear market! Bear market!" — stocks soared to new highs. I wonder if short sellers obtain some kind of masochistic satisfaction buying the SPDR S&P 500 exchange-traded fund (ETF) back at $159 after telling their clients to dump it last week at $154.

That wasn't all the good news. I was so heartened by the rejection of Microsoft's Windows 8. Why this periodic update of operating system bloatware continues to fascinate and encourage Geekdom escapes me.

Here’s what I like about it:

1. Company produces inferior operating system.

2. Consumers reject it.

3. Consumers save money.

4. Investment capital flows toward firms that produce higher-quality products.

Why do pundits claim this is bad for our economy? Is it bad for diners when a manager replaces an inefficient waitress? Of course not. Similarly, why wait for the blue screen of death when I can boot up a Chromebook in less than 8 seconds and let Google deal with virus attacks?

Third: North Korea, would you please, please, PLEASE fire that missile and show the world just what a pathetic economy and technology you have? I notice gold traders are really scared: the metal just touched multi-year lows. A 10-year-old kid with a remote control toy helicopter has more computing power than your entire nation does.

Let me go back to talking about stocks (I am a finance guy after all). The biggest howl was the argument by bears that since "defensive" healthcare stocks led the market higher, this was somehow proof that "smart money" was trying to reduce risk and hide from a slowing economy. The financial chattering classes in the mainstream media were all affright since the Health Care Select Sector SPDR (XLV) fund run by State Street Global Advisors has been on a tear in recent months. XLV's 18 percent gain so far this year blows the major indexes (up 9 percent or so) out of the water.

Sure, XLV does have half its funds in stodgy pharmaceutical/consumer healthcare stocks like Pfizer or Johnson & Johnson. But have you ever looked at the "other half?"

There you will find dynamic and growing companies that manufacture healthcare equipment (such as Intuitive Surgical's Da Vinci robot); healthcare providers such as Humana and Coventry; and biotechnology titans like Gilead Sciences, Amgen and Biogen Idec. Many of these companies boast double-digit growth, pristine balance sheets and profit margins that software firms would die for. Yet this healthcare SPDR boasts a price-earnings ratio of 16, not much more than the PowerShares QQQ Technology ETFs' 15 despite far brighter growth prospects and … well, yes, a market immune to a lot of the vagaries in our economy.

But "defensive?" No way. These companies are taking big risks with new products and technologies that have already begun to transform the way our healthcare is delivered. Their share prices are performing well because they are producing the medicines, the services and the products that will continue to revolutionize our healthcare industry. And they will continue to do so for decades to come.

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