When the administration initially unveiled its health-care overhaul plan, investors ran for the exits in the health care sector, shunning the once-desired safe haven for the recession. Now investors are having a change of heart. The catalyst is the belief, and therefore bet, that the most onerous measures of the health-care bill have been killed off. Fears that the bill would hamper the industry's profits whether it was insurers, hospitals, or drugmakers are easing, as many perceive that the "worst case scenario" could be averted.

In fact, investors and analysts are now beginning to focus on the potential positive measures of the bill, such as if coverage were extended to include millions of the uninsured, that could be a boon for the sector.

As the sector has been beaten down, valuations on the space are appealing. Also, if the market did take a turn for the worse -- the economic fundamentals aren't on solid ground yet -- health care would still remain a defensive play, giving your portfolio downside protection.

With all this in mind, let's look at some companies in the space. To uncover prospective investments in the health-care sector, I used the Fool's CAPS screening tool to look for companies that:

  • Have a maximum price-to-earnings ratio of 17
  • Have a current ratio of one or greater to ensure liquidity
  • Have a return on equity of 17% or greater to ensure efficiency
  • Have market caps of $250 million or greater
  • Have ratings of four or five stars, the second-highest and highest ratings from our CAPS community

And voila! Here's what my scan popped out today:

Company

Market Cap (in billions)

Price-to-Earnings (TTM)

Current Ratio

Return on Equity (TTM)

Abbott Laboratories (NYSE:ABT)

$70.2

13.3

1.6

26.9

Amgen (NASDAQ:AMGN)

$61.6

14.4

3.9

20.6

China Medical Technologies

$0.5

5.6

7.5

25.3

Genoptix

$0.48

14.8

10.4

22.6

PetMed Express

$0.4

16.5

4.7

29.2

GlaxoSmithKline (NYSE:GSK)

$99.5

17

1.7

48

Johnson & Johnson (NYSE:JNJ)

$169

13.4

1.8

27.5

Source: Motley Fool CAPS. TTM = trailing 12 months.

The legislation could also be beneficial for pharmacy benefit managers like CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), or UnitedHealth (NYSE:UNH) because they play a role in assisting insurers in controlling drug spending.

All said, there is still uncertainty with this bill. So just because there's an intuition that the final version of the bill will be watered down, nothing is set in stone yet. Besides, while this bill -- if passed -- would have important implications for the sector, you shouldn't base your investment thesis solely on the passage, or lack thereof, of the health-care bill. This should only be the first step in your investment research. Prospective investors should pay careful attention to companies'  businesses, position in the competitive landscape, and financial health.

Start padding your portfolio at Motley Fool CAPS today. Let the collective wisdom of our 135,000 member-strong investment community help you make better investing decisions.

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