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Health Care Stocks: Check Out This Low-Cost Market Beater

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some health care stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares US Healthcare ETF (NYSEMKT: IYH  ) could save you a lot of trouble. Instead of trying to figure out which health care stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on health care stocks, sports a relatively low expense ratio -- an annual fee -- of 0.46%.

The iShares US Healthcare ETF has outperformed the world market over the past five and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why health care stocks?
For starters, the world's growing and aging population will keep demand rising for health care products and services. On top of that, Obamacare is ushering more Americans into health coverage, bringing health care companies more customers -- and thereby boosting the prospects of their stocks.

More than a handful of health care stocks had strong performances over the past year. Regeneron Pharmaceuticals  (NASDAQ: REGN  ) , for example, surged 34%, partly on the success of its wet age-related macular degeneration drug, Eylea, which generated close to $2 billion in sales last year and may gain approval to tackle other eye issues, too. Regeneron's pipeline has a lot of potential, including its PCSK9 inhibitor, alirocumab, which is faring well in Japanese trials. The stock is not a slam-dunk, though, as there's able competition, and its valuation isn't exactly cheap. Regeneron reports its first-quarter results on May 8.

Biogen Idec (NASDAQ: BIIB  ) jumped 32%. The company is enjoying strong sales of its multiple sclerosis drug Tecfidera, while also gaining Food and Drug Administration approval for its developmental hemophilia B treatment, Alprolix. In its last quarter, earnings popped 56%, with Tecfidera sales approaching $400 million. The company's pipeline holds much promise, with additional treatments for hemophilia and MS, for example.

Gilead Sciences  (NASDAQ: GILD  ) gained 27%. Its recently approved oral hepatitis C treatment, Sovaldi, has blockbuster potential and is off to a strong start, but many are balking at its steep price tag of around $84,000 for a 12-week course. Sales of Gilead's HIV drug Stribild are growing rapidly,  and it might achieve blockbuster status soon, too. (Gilead is a leader in HIV treatments, which generate much of its revenue.) The company's fourth quarter was strong, in large part due to new products -- which is good for a drug company, as patent expirations limit the value of older drugs. With a forward price-to-earnings ratio near 11, the stock is worth considering.

Other health care stocks didn't do quite so well over the last year but could see their fortunes change in years to come. Celgene Corporation (NASDAQ: CELG  ) , another biotech concern, tacked on 11%. It's on a roll, thanks in part to its anemia drug, Revlimid, with many hopeful about its recently approved arthritis drug, Otezla, too. Celgene is investing heavily in other companies with promising early-stage drugs, a move that could pay off handsomely in many years, not months. As my colleague Stephen Simpson has noted, Celgene has "a deep early stage pipeline of oncology drugs" and "meaningful label expansion opportunities for approved drugs." It appears to be undervalued, too, with its forward P/E ratio near 15.

The big picture
If you're interested in adding some health care stocks to your portfolio, consider doing so via an ETF. 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.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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