Why Obamacare and Hospira Inc. Are The Perfect Fit

... and why Hospira Inc. looks like a solid investment.

Jan 7, 2014 at 4:54PM

Whatever your view is on Obamacare, its aim seems to be working if Sen. Harry Reid's figures are anything to go by. The Nevada Democrat recently said that around 9 million Americans now have health care when they didn't have it before, so one of the major considerations is likely to be keeping costs down for all involved.

Of course, drugs aren't cheap to research. They take a long time to gain approval, and there are inevitably a significant number of failures for each blockbuster drug produced by the likes of GlaxoSmithKline (NYSE:GSK) and Bristol-Myers Squibb (NYSE:BMY).

They focus their efforts on the research of new drugs, and their business models are very much geared toward finding the next "wonder drug" that will mean sky-high margins for a limited period.

Furthermore, they both seem to be doing well out of it, with GlaxoSmithKline pulling back from the consumer goods companies it owns to focus on research and development. Meanwhile, Bristol-Myers Squibb has sold its part in the diabetes alliance with AstraZeneca to focus on other parts of the business. While GlaxoSmithKline lagged behind the broader market in 2013, its unique innovation platform and robust pipeline bodes well for the future. Bristol-Myers Squibb, on the other hand, had a stellar year, posting massive returns.

BMY Total Return Price Chart

BMY Total Return Price data by YCharts

Where does Obamacare fit in?
While the Affordable Care Act, also known as Obamacare, is obviously keen to see new drugs come along to help those in need, as I mentioned, a major consideration is likely to be keeping costs down.

Here's where Hospira (NYSE:HSP) comes in.

It focuses on high-quality, low cost generic medicines and can best be thought of as the company that carries the baton after patents have expired and the likes of Bristol-Myers Squibb and GlaxoSmithKline have moved on.

Therefore, while it's already the world's leading provider of injectable drugs and infusion technologies, demand for its products could increase significantly under Obamacare and any further health-care developments in the United States.

Allied to this demand is a balance sheet that's in good shape. For instance, Hospira's debt as a proportion of equity is just 57%. Furthermore, Hospira doesn't trade on too much of a premium versus the wider index when the potential for increased future demand is taken into account. For instance, its price-to-earnings ratio is 19.9 (trailing 12 months), which is only 6% higher than the S&P's P/E of 18.8.

Certainly, the potential for one-off, positive surprises is less than for the likes of GlaxoSmithKline or Bristol-Myers Squibb, and as such, many investors may not see Hospira as exciting enough.

However, with Obamacare covering 9 million Americans who previously didn't receive health care treatment and the potential for the U.S. health-care system to become more comprehensive and inclusive in future, a focus on costs could benefit companies such as Hospira.

Still in the dark about how Obamacare affects you?
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." This free guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

Fool contributor Peter Stephens owns shares of AstraZeneca and GlaxoSmithKline. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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