Make Money in Growing Health Care Equipment Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to thrive as our global population not only grows but also lives longer and develops more health-care needs, then the SPDR S&P Health Care Equipment ETF (NYSE: XHE  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF is too young to have a meaningful track record to assess. And regardless, as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 21%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several health care equipment companies had strong performances over the past year. Intuitive Surgical (Nasdaq: ISRG  ) , a dominant force in robotic surgical machines, surged 68% as more hospitals bought its equipment and then proceeded to generate recurring revenue for the company by buying service contracts and consumable accessories and supplies for the machines. MAKO Surgical (Nasdaq: MAKO  ) , up 54%, is a similar business, but focuses (so far) on knees and hips, while Intuitive has made much of its money on prostatectomies and hysterectomies. Investors have been drawn to these companies by their huge growth rates and great potential. As more procedures are commonly performed via robotic equipment, their futures will get even brighter. While MAKO isn't yet profitable, Intuitive Surgical is enjoying fat margins.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Edwards Lifesciences (NYSE: EW  ) shed 4% over the past year, despite having popped 14% recently on reporting strong quarterly results. The company warned of weakening sales of its transcatheter valves, though, and it's facing some tough competition. It may not yet be the perfect stock, but it still has a lot going for it, such as solid profit margins and returns on equity.

Boston Scientific (NYSE: BSX  ) , meanwhile, shrank by 16%. Some highly rated participants in our CAPS community are bullish on the company, excited by a new CEO (coming from Johnson & Johnson), insider buying, declining debt, a promising pipeline, and a low valuation. Others are pleased to see an increase in free cash flow that's being used to fuel share buybacks and acquisitions.

The big picture
Demand for health care equipment isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

If you're looking for investments with huge potential, check out our special free report, "Discover the Next Rule-Breaking Multibagger." It profiles one of the companies above.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Intuitive Surgical, Johnson & Johnson, and MAKO Surgical, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of MAKO Surgical, Johnson & Johnson, and Intuitive Surgical. Motley Fool newsletter services have recommended buying shares of MAKO Surgical, Johnson & Johnson, and Intuitive Surgical, as well as creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that
considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1878750, ~/Articles/ArticleHandler.aspx, 4/24/2014 12:10:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement