With evolving legislation, tepid industry returns for the past year, and the old-fashioned risk of too many patients dying, investing in the health-care arena is not for the risk-averse. But there are companies whose prospects make for intriguing opportunities. As Stock Advisor analysts wrote of this year's reform package, the goal of expanding coverage will mean more business for hospitals, pharmaceutical makers, medical device companies, and others. But the package's goals of improving quality and arresting the nation's spending growth will likely mean lower profit margins for most of these companies -- and an opportunity for industry leaders to gain strength.
Back in 2002, David Gardner encouraged Stock Advisor members to buy shares of hospital operator Tenet Healthcare
Today, however, Tenet's balance sheet looks much healthier, according to Motley Fool analyst Jim Mueller, with a decreased cash conversion cycle over the past several periods (although rival Universal Health Services has performed even better by that metric). Because of such promising numbers in conjunction with tailwinds from a demographic shift, companies that run hospitals might be worth a look.
Another erstwhile Stock Advisor recommendation in the sector -- and another one-time cautionary tale -- is Amedisys
While Tenet and Amedisys are worth watching for signs of life -- and by the way, we recommend you try the Fool's free new service by clicking on www.MyWatchlist.com as a way to keep up with the news and numbers about the companies you want to keep an eye on -- there's another company in the arena that looks like it might cause fewer palpitations. Medco Health Solutions
In his most recent comments about the company, David wrote, "Medco keeps down costs better than any benefits manager in the business, which gives it a leg up on keeping its contract with UnitedHealth. Investors are stuck on a small bump in the road as fewer new generic drugs are scheduled for next year, but this short-term worry offers you a buying opportunity."
And that's exactly why it pays to watch. You can help yourself make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click here to start building yours, or click below to start following one of the three stocks mentioned above:
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Roger Friedman doesn't own shares of any companies mentioned, but they're all now on his watchlist. MedcoHealth Solutions and UnitedHealth Group are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on UnitedHealth Group, which is a Motley Fool Inside Value recommendation. The Fool owns shares of UnitedHealth Group. The Motley Fool has a disclosure policy.