Top Stocks to Buy Now That the 21st Century Cures Act Has Passed

Now that Washington has signed off on the 21st Century Cures Act, deregulation, streamlining, and billions of additional research dollars could cause healthcare stocks to pop. Do you own the stocks most likely to benefit?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell share the stocks they think are poised to benefit most from the Cures Act. On their list are top medical device stocks, such as Medtronic (MDT 0.47%), and drugmakers, such as Biogen Inc. (BIIB 0.51%), Johnson & Johnson (JNJ 0.25%), and BioMarin (BMRN -0.06%). Tune in to learn out more about these stocks and whether they're right for your portfolio.

A full transcript follows the video.

This podcast was recorded on Dec. 21, 2016.

Kristine Harjes: The next segment of our show is inspired by a listener question that came in through Twitter. If you guys aren't already following us, our handle is @MFIndustryFocus. This question comes from Harris Arshad. He asks us, if we were to create our own ETF based on the 21st Century Cures Act, what would be included? There's some background necessary before we dive in and actually answer this question. Todd, do you want to give an elevator pitch? We probably need to describe both the Cures Act really quickly, and also what an ETF is.

Todd Campbell: I'll start with the Cures Act. We'll keep it very high level here. The Cures Act was passed by Congress and signed by the president. What it's designed to do is to reduce the regulatory burden on drug and medical device discovery and development, to increase the speed of reviewing those products that have been researched through the FDA, and to get them into patients' hands more quickly. So, they're doing that through a lot of various different carrots, including billions of dollars of additional spending that they're going to be sending to both the National Institute of Health and the FDA.

Harjes: And if you're curious about more, we did an entire half of an episode on the 7th of December. If you missed that episode, be sure to go back and check it out. Meanwhile, the second piece of background necessary for answering this question is: What is an ETF? An ETF is an exchange-traded fund. It's essentially a basket of stocks that trade for a single price. It's kind of similar to a mutual fund, but instead of having its value determined by the underlying assets once per day like a mutual fund does, an ETF is traded like a common stock, so its price will go up and down throughout the day. Basically, all you need to know if you're not super familiar with ETFs is, it's a handful of stocks that we're looking at here.

Campbell: Right. We have plenty of coverage on The Motley Fool's website if anybody is interested in looking more into different ETFs. It was a fascinating question to me, and it really got me thinking about who's going to benefit most, potentially, from the Cures Act.

Harjes: Yeah, absolutely. For me, the first one that came to mind were drugmakers. I'm not going to pick every single drugmaker, but I would pick a couple of them to throw into this basket. One that I would throw out there is BioMarin. This is a company that's focused on rare-disease drugs. One of the things that came up in the Cures Act is that now, the FDA is allowed to consider real-world evidence about a drug's efficacy. So, outside of trials, do we see this drug working? And that could lead to expedited approval, especially for patients with an unmet need. So, your patients that are looking at receiving rare-disease drugs. So, I could definitely see them benefiting from this act.

Campbell: I totally agree with you. I'm actually going to cheat with one name that I would like to include in there. It's going to be an ETF of ETFs. I think people should look at the medical device ETF, the iShares Medical Device ETF -- symbol is IHI -- and that's because one of the most vocal lobbyists involved in creating this act was the medical device lobby. There are lots of different things in this act that help to increase everything from breakthrough designation to the ability to use new devices in more rare diseases. There's a lot of goodies in this act that could help prop up medical device stocks. If you wanted one in particular, I guess Medtronic is kind of the grand-daddy of medical devices.

Harjes: If you think we're cheating by choosing the IHI, then the biggest holding -- this is a guess, but I think it's a pretty strong guess -- is Medtronic.

Campbell: It is. Medtronic is No. 1 at 12%. Abbott Labs at 7.7%, and Thermo Fisher at 7.7%.

Harjes: Yeah, that sounds right. So at Medtronic, they make cardiac devices, diabetes devices, and more. They're a huge company. They're very diversified. They're a Dividend Aristocrat. If you're only looking for one medical device company, that would be my pick.

Campbell: Yep. And if you want to go with a bigger basket, just go with the IHI.

Harjes: Indeed. Another company that I'll throw into our broader ETF is Johnson & Johnson. That's because it has devices and it also has drugs, so you're getting two for one there.

Campbell: Yeah, that's a good pick, and it's a Goliath within both of those areas. I guess I would toss in the ring Biogen, because Biogen is doing a tremendous amount of research and development on neurodegenerative diseases like Alzheimer's and Parkinson's disease. Specifically in the Act, there's a lot of money that's being set aside for the Brain Initiative, and also for the Precision Medicine Initiative, both of which could increase the number of drugs that end up in the clinic targeting cognitive decline.

Harjes: Right. There's a lot of money in here going toward those initiatives, which are trying to harness the power of data to create personalized treatments. Basically, what precision medicine is doing is taking into account the individual variability in your environment and your lifestyle and your genes. You can even see there some genetic companies getting into the mix. Maybe something like an Illumina that does gene sequencing.

Campbell: Absolutely. And they're saying one of the biggest advances, potentially, in Alzheimer's research could come from deep sequencing, which is something relatively new. We have finally gotten the technology now to really dive even deeper than we ever have before into the genome. Perhaps, in doing that, we'll find some more of these common threads that connect different patients who are suffering from this devastating disease.