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Gamco Investors Portfolio Manager Jeff Jonas on the investment opportunities in the health-care sector.
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-- -- -- The fiscal cliff deal brings some major changes to the health care sector and we've got a money manager says new regulations 'cause we know it's all out there provide new investment opportunity.
Jeff Jonas is portfolio manager at Gamco Investors -- of course go belly.
Good to sealed -- and spreads beyond.
It up but people tend to be very negative in many ways about Obama -- but you distill the whole bunch of names that could do very nicely.
Even under the new rules and regulations how do you decide which sectors would look good.
Yeah I mean I think for the entire industry it's a positive because it's about one point seven trillion dollars -- new spending that's essentially the same system that we have today.
So I'm looking at the hospitals in particular like HCA and Tenet.
And they're benefiting right now from strong flu season and from some economic recovery and some reduction in their bad debt.
But as we get in the Tony fourteen they're gonna see significant volume gains and significant reductions in the bad debt and charity care which can be 20% of revenue today.
Well yeah and and look at some of these names for example if you look at Tenet Healthcare over the past year.
Up 71.
Per cent.
HCA not about 41%.
Gain and I guess what comes to my mind is -- those numbers be.
Repeated even with so many millions being added to the insurance rolls it can receive kind of move on a chart again this year.
Well I think both of the companies are benefiting from the debt markets being wide open so -- and under levered and they've levered up out of buyback over 30% of their stock.
HCA on the -- to pay special dividend saw their shareholders.
But now I think you really see the volume gains and these companies have a lot of operational leverage and a lot of financial leverage so the impact on the bottom line is really into magnified out there.
Taken up much risk I would be more worried about the Biotech guys or say for example the medical device makers have now have that 2.3 percent tax levied on their gross profits not even.
-- -- gross revenue rather not even what that they make profits so our our.
Are their names in there that can still do well yeah I think we're a little more cautious on those device companies but they have restructured.
And -- Basically laid off people in offshore manufacturing.
So they're trying to deal with that.
But I think someone like sound appealing to Costa Rica is -- the medical device guys are doing its Costa Rica Ireland Singapore any area that has a low cost of labor and especially low tax rate.
There's very popular.
I think someone like saint -- could do well have been recovering from some challenges and -- twelve but then they're also using their cash flow to buy back about 10% of the stock as well.
You know I keep -- about the name -- and I know it's not a choice of -- but that's a medical device maker that has way more exposure to Europe and the US.
And it a lot of people come on let's say go without one if you wanna invest in one because.
-- -- not exposed to the US are not exposed to -- -- but after a lot of European taxes all over the place sometimes what we do own committee and we do like it.
They're based and Ireland so they do avoid some of the more restrictive tax Virginians.
But -- does very well positioned across the different products they offer and -- investing heavily in emerging markets as well.
Fiscal -- in over the past year -- -- pretty decently but again.
80% of their exposure is to Europe and not here in the US -- let's talk about say for example some of the pharma names wouldn't you know Boston Scientific.
Biotech those names are they it poised to do well or to deflate just a bit but we've really stay away from Boston Scientific which is -- medical device company.
And it's just because they're two main markets -- drug eluding stents and implantable defibrillators.
And both of those are under a lot of pressure just real sluggish volume growth and a very significant price pressures while.
So it's been a real challenge for them doesn't it make you think twice about the sort of that the lack of insight when it comes to the markets a year ago everybody should watch out anybody who makes anything is gonna do poorly -- the hospitals are gonna get slammed they did fine yeah.
It's been very surprising.
Happy new -- to see you right thanks for having me never know what's gonna happen at any given year but -- when you look back and see what did happen.
To listen to mr.
Jonas here pessimistic.
