5 Health Care Stocks to Buy Now

This week’s political headlines were dominated by the vote in the Senate Finance Committee on the so-called Baucus Bill.  The Bill made it out of the Committee by a vote of 14 to 9, and now it’s headed to the full Senate for debate.  Even as I write this, White House officials and Senate Democrats are meeting in private to iron out differences on the health care overhaul that will likely affect every American.

To be sure, this legislation is likely to cause some pretty radical changes to our nation’s health care system, and the prospect of this radical change justifiably has many investors worried about the fate of health care stocks.

But to health care investors I say, fear not.  Whatever the government does, we are all going to need products made by health care companies.  And while I am a big opponent of any government involvement in the free market, I don’t think any of the proposed alterations to our health care system can stop the profit potential of the following five health care companies.

Next – Health Care Stock #1 – Johnson & Johnson (JNJ)

Health Care Stock #1 – Johnson & Johnson (JNJ[2])

Perhaps the quintessential health care stock, Johnson & Johnson (JNJ[2]) is the world’s biggest medical-device maker and one of the world’s largest pharmaceuticals companies.  I suspect that most people in America can’t go into their medicine cabinets without rummaging through several J&J products.

On Tuesday, Oct. 13, Johnson & Johnson reported better-than-expected earnings for its latest quarter.  The company’s report did show a slowdown in sales, but I suspect that is largely a function of the overall slowdown in the economy.  I think that no matter what changes are made to our health care system by Washington, J&J’s diverse revenue stream, excellent management team, strong balance sheet and strong drug pipeline will keep the profits coming.

Next – Health Care Stock #2 – Abbott Laboratories (ABT)

Health Care Stock #2 – Abbott Laboratories (ABT[3])

Like JNJ, Abbott Laboratories (ABT[3]) is both large and diversified. The company makes prescription pharmaceuticals and a wide range of consumer health care products.  On Wednesday, Oct. 14, Abbott delivered better-than-expected Q3 earnings that included a 36% profit increase from the same period a year ago.

The company’s better-than-expected third-quarter results led ABT to raise earnings guidance for the full year.  Abbott’s latest earnings beat is just one of many stellar earnings reports the company has consistently delivered over the years, and I think Abbott’s track record proves that even if the government decides to handcuff drug companies, Abbott will find a way to make money for investors.

Next – Health Care Stock #3 – Baxter International (BAX)

Health Care Stock #3 – Baxter International (BAX[4])

This health care firm makes hospital products, including blood and renal therapy devices.  On Thursday, Oct. 15, Baxter International (BAX[4]) reported third-quarter earnings that rose 12% from the prior year.  Excluding one-time charges, profit was 98 cents a share, one penny better than the consensus estimate of 97 cents per share. 

I think the key metric to watch here is Baxter’s $30 million to $40 million in anticipated revenue in the fourth quarter from its H1N1 vaccine, which the company began shipping in August.  I suspect this will be an ongoing revenue winner for Baxter going forward. I also think that as the economy improves, capital spending among hospitals will start to climb, and that’s going to be great for Baxter’s bottom line.

Next – Health Care Stock #4 – Teva Pharmaceutical

Health Care Stock #4 – Teva Pharmaceutical (TEVA[5])

You may not have heard of Israeli-based Teva Pharmaceuticals (TEVA[5]).  After all, Teva isn’t quite the household name that J&J or Abbott is.  But thanks to the company’s acquisition of rival Barr Pharmaceuticals, Teva now has 22% of the U.S. generic-drug market, the largest market share in the industry. 

Not content to rest on its near one-quarter U.S. generic drug market share, Teva plans on launching as many as 25 new generic drugs by 2010.  The company’s also planning on diversifying into branded drugs.  I say that no matter what happens in Washington, people will need low-cost drug options, and that means people will continue buying the numerous products made by Teva.

Next – Health Care Stock #5 – Merck (MRK)

Health Care Stock #5 – Merck (MRK[6])

Our final healthy health care stock is Merck (MRK[6]).  The pharmaceutical giant makes a bevy of well-known drugs, including Singulair, Fosamax and Gardasil.  One thing that sets Merck apart from its competition is the pipeline provided by its acquisition of Schering-Plough.  The company’s drug pipeline is a potential goldmine, and according to analysts who follow the firm, that pipeline could account for $5 billion to $6 billion in incremental annual revenues by 2015.

Like many of the well-funded health care stocks we’ve talked about here, the key to Merck’s continued profit potential is the company’s ability to keep coming out with products the public both needs and wants. The need to get well isn’t going to evaporate just because Washington rearranges the deck chairs on the health care ship. 

Merck and the other companies mentioned here will prevail regardless of government interference, and that makes them five healthy health care stocks every investor should consider.