Election seasons are often uncomfortable times for healthcare investors. When healthcare and coverage flare up as hot topics of debate, there's more potential for giant, unpredictable changes in the sector.
In this segment from The Motley Fool's Industry Focus: Healthcare podcast, Kristine Harjes and Todd Campbell answer a question from Foolish intern Amanda Way. They'll explain how investors should think about investing in healthcare during this uncertain time, and how keeping your mind on the long-term picture can help you keep a cool head.
A transcript follows the video.
This podcast was recorded on Jun. 22, 2016.
Amanda Way: Kind of a follow-up by Emily Flippen, intern on the investing team. She asked: "With the current election cycle, I'm uneasy to invest in healthcare companies like Gilead Sciences (NASDAQ:GILD) and Celgene (NASDAQ:CELG) because of the potential impact of changes to Medicare and Medicaid. Is this fear justified? Will the election impact healthcare earnings?"
Kristine Harjes: Yeah. Regulatory risk has been a thorn in the side of all of healthcare, ever since the whole Martin Shkreli debacle, the most hated man in America. When people started to really look at just how much money these healthcare companies were making -- and some of them had a story behind them that was pretty hard to justify, this whole model of buying up other drugs that are forgotten about and then jacking up the prices, especially rare disease drugs. People got really, really upset about this and rightly so. This had this trickle-down effect to a lot of other drug-makers. I think this regulatory risk had made the entire sector pretty volatile lately.
Todd Campbell: It always tends to ... Regulatory risk and the political discourse, everything tends to get really, really nerve-racking for healthcare investors around presidential election cycles. This reminds me a lot of where we were back in 2008, when we were debating massive potential changes to the healthcare industry that would be associated with what became Obamacare, the Affordable Care Act. You couldn't open up your computer, internet browser without stumbling upon an article saying how this was going to really, really change everything and can really, I guess, sink most for-profit healthcare companies.
Harjes: It was a lot of negative publicity and people were saying there's no way there's going to be any for-profit insurers left after this.
Campbell: Right. What ended up happening, interestingly enough, was that that turned out to be a phenomenal buy opportunity for healthcare investors. If you were able to step in and buy healthcare stocks into the teeth of all of that, then you were rewarded incredibly handsomely for taking on that risk. If you're going to be investing in healthcare stocks, you have to recognize that there is political risk, there is regulatory risk, but never underestimate a company's ability to change with the times and figure out a way to profit from whatever changes occur because of that risk.
Harjes: Yeah. That's what they do. They're for-profit companies. They will find way. And of course, we always say that the past can't predict the future. I mean, I don't want to say if so-and-so is elected and healthcare company stocks tank, it's definitely a great buying opportunity for every single one of them, but what I will say is that in the end, long-term trends trump everything ... That's an ironic word choice right there. That will trump these short term political swings which are totally unpredictable.
Campbell: Right. We are Foolish investors, right? So we want to look at the longer-term trend that supports owning healthcare stocks. We want to say, 76 million baby boomers getting older, requiring more care for longer periods of time -- that is really what should be driving interest in these companies.
Kristine Harjes owns shares of Gilead Sciences. Todd Campbell owns shares of Celgene and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool has the following options: short October 2016 $95 puts on Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.