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Highland Capital Management’s Michael Gregory on how to profit from the winners and losers of the health-care law.
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So there's a new poll out today -- -- support for president Obama's health care law is at its lowest point since the law passed but we've got somebody uses who cares she's making money off the changes no matter what.
With his long short health care fund.
Michael Gregory is a portfolio manager at highland capital management and he joins us now in -- fox.
Business exclusive Michael good to see -- -- -- clear coming it's so you'd -- in order to make money on this you think you have to bet on both the winners and the losers and get him.
Both in -- into the same -- Biggest structural change in 45 years.
And that's the Russian all we launch this fund I've been managing.
Institutional portfolios for the better part of twelve years.
But we wanted to make in mutual fund available to the marketplace.
And that's inclusive of both the winners and losers both belongs in the short that's right that's the first long short health -- focused mutual fund.
So -- -- picking winners and your picking losers so let's start with the winners how do you decide who will really benefit from this health care law we have to say the system money.
You have to operate in a cost contained environment.
Take a business like Cigna to health insurance trades at eight times next year's earnings and their whole business models predicated upon the ability to reduce costs.
And Cigna is advanced aggressively into international markets so they've shown innovation they've shown a -- for growth.
Losers are businesses that don't save costs that don't intimate.
Like hospitals for example well hospitals -- be one consider that the US is fourteen point three trillion in debt we're gonna burn about a billion per month and budget deficit.
And so we -- in the -- time with the debt ceiling debates we're gonna see it when the quote unquote super committee convenes in gives their grand judgment.
On November 23 but let me just make it real simple so you're you're long -- you're shorting the hospitals.
And and -- -- the insurers that -- That's right and we're also shorting the business is that the hospitals -- put pricing pressure on.
Think about Becton Dickinson household name trades -- -- fifteen times next year's earnings.
The hospital CFO once he gets a cut from the US government for the amount that he received for treating a Medicare Medicaid patient is gonna turn around and put price pressure on -- -- -- below.
Just sit back to -- and some makes syringes and things like that.
But if you want they make up the volume for what they might lose in March and surprisingly -- has been low most companies and health -- space.
Have suffered extremely low utilization we don't see that trend abating anytime soon what about say for example the the medical device makers.
While you're at and 32 million people minimum to the insurance roles would you expect more people need hip replacements knee replacements in -- for something like Stryker might be a beneficiary.
Absolutely -- have to look at businesses that aren't exposed price pressure.
One of the names we like long his name called.
Here's a -- the Kentucky nicely too many larger medical device companies will benefit from volume but because they have such a commanding presence into markets that they operate they won't.
Be exposed to pricing pressure.
Let me three a contrarian argument though the fact that there that there's so many more people are going to be insured.
Which means a lot more doctors doing a lot more things means maybe there will be less specialties.
Maybe individual doctors orthopedist and so forth won't be able -- perform as many of their operations as they have before.
I agree with you to some extent as it relates to our for care they operating ENT there's nothing more apple -- not.
You need it regardless of what happens in health care sector and secondly -- sports medicine.
But you're right about the trend there will be more consolidation.
Towards.
Figure practices and get rid as they're gonna be -- -- saying what is allowed and what is not allowed in terms of what should insurance will cover there will be.
And there comes -- that the super committee of course which will weigh in with their recommendations around Thanksgiving time.
And if there are cuts which we've heard you know the Republicans wanna cut Medicare and that sounds like the Democrats are kind of coming around to at least some reasonable cuts.
What then place into the two picks that you made.
Well you know the person have to look at is whether or not there will be compromise we've seen a total inability to compromise in the debt ceiling debate.
Putting a bet that it will occur before November 23 it's a long shot.
Some on the question is what happens I think the biggest help from November -- point there will be who's on the chopping block.
And it's our job to really forward looking anticipate where those cuts are gonna comes we stay out of trouble -- seek opportunities well under way you have a sea of one point 4%.
That's correct and -- -- a very low entry point 5000 barks is all you need to get in your fund right -- Connect the highland long short health care fund.
Michael Gregory good to see -- thanks for having.
