Cashing In on Obamacare

I know, I know. Obamacare is the worst idea since the Spice Girls reunion tour. It will stifle competition and kill capitalism. It will bankrupt the country and have us eating cat food in retirement. We'll all have to submit to the presidential death panel our DNA plus a 1,000-word essay on "What I Would Like to Do Next Summer" in order to decide who gets an insulin prescription and who gets a sympathy card. Hey, did I mention the entire country's going commie?

Oh, I'm sorry. My mistake. You're a fan of Obamacare? Then rest assured, I understand your enthusiasm for the subject. Wringing costs out of the health-care system is vital. Clearly, the only way to do that is a government-run reform program. Government being known for its efficiency and lean operations, a pillar of the reform must be a public insurance option. This is the only way to shake the existing health-care establishment out of its complacency. If that means a few less ivory backscratchers for those Wall Street fat cats (who, by the way, have more money than you do. I'm just sayin'), then so be it. Also, did I mention that those fat cats are rich?

Step away from the talk radio.
Sorry if that sounded flip, but frankly, I'm amazed at the vitriol that's been whipped up -- on both sides -- of this debate. And I'm tired of being amazed. I acknowledge that this is an important debate for our country, but I'm not spending anymore energy getting worked up about it. The misinformation spouted by health-care reform's detractors (i.e. "death panels!") and proponents (i.e. "record profits at insurance companies!") is too pervasive to amaze me any longer.

Besides, I think there's a better way for us investor types to spend our limited energy on Obamacare: We should be figuring out how to make a buck in health-care stocks.

The unloved sector
Some of you are no doubt thinking, "Make money in health care? This guy had better hope Obama includes major psychological benefits in his plan." But if so, you probably thought the same thing back in January when I recommended Autoliv to members of Motley Fool Hidden Gems. At the time, it was well known that no one would ever buy a car again, therefore all carmakers, along with car suppliers like Autoliv, were investments to be avoided like swine flu.

Of course, Autoliv returned more than 100% from that point because what everyone "knew," and feared, turned out to be worse than what actually happened. Ford (NYSE:F) and even the-company-formerly-known-as-GM have had to increase production to deal with an uptick in car buying. Sure, sales are still below the boom time's high-water mark, but companies like Autoliv were priced for death, and when they didn't flatline on the table (maybe they wrote a really good essay to the death panel), the stocks came charging back.

Same story, different sector
I was recently asked to talk Google (NASDAQ:GOOG) and tech stocks on CNBC's "Closing Bell," because tech stocks are currently hot, I guess. As one member of the parade of bland men in suits, I was hoping to distinguish myself -- at least somewhat -- from the crowd by refusing to play the hot-sector game. In fact, as I explained to "Money Honey" Maria Bartiromo, the concept of the hot sector makes me uneasy. By the time a sector has attracted attention, many of the stocks in it have risen, some nonsensically, and bargains are harder to find. Enthusiasm for what's already popular might get you face time on CNBC, but it's likely to put your portfolio on long-term life support.

As Buffett has put it, you pay a high price for a cheery consensus. Luckily, the opposite is also true. You get a bargain price for fear and loathing. That's why, to the extent that a "trees-not-forest" investor like me is interested in sectors at all, I'm much more interested in groups of companies that are feared or openly reviled. And right now, I'm having a hard time thinking of a sector that is as maligned as health care.

Health-care stocks, as a sector group, have not been as well treated as most other sectors during the market rebound of the past six months, as investors are uncertain how health-care reform could affect different companies.

Data from Yahoo! Finance. Dividends not included.

However, that bottom-of-the-heap index-ETF return looks positively excellent compared with the results from some of the losers in this space. A few big names like UnitedHealth Group (NYSE:UNH) and WellPoint (NYSE:WLP) have seen their shares rally along with the market, but health care can be a tough sector for many companies:

Data from Capital IQ, a division of Standard & Poor's.

Foolish final thought
I think one of the ways you can beat Mr. Market is by looking in hated sectors for great companies, and buying the babies, so to speak, while they're being tossed aside with the bath water. Given the angst and rancor of the health-care debate, I think you ought to devote a portion of your stock research to this sector.

At Motley Fool Hidden Gems, where we focus on small-cap companies that we believe have the potential to become large winners, we're even putting our money where my mouth is. My team has doubled-down on its work in the health-care sector. We were recent buyers of inVentiv Health, and in our Thursday issue, we've got the word on another strong operator in the health-care sector. If you'd like to see where we hope to profit from Obamacare, simply click here for a risk-free trial.

Already subscribed to Hidden Gems? Log in at the top of this page.

Seth Jayson is a co-advisor of Motley Fool Hidden Gems. He doesn't own shares of any companies mentioned in this article. Autoliv and inVentiv Health are Hidden Gems recommendations. inVentiv Health is also a Stock Advisor pick. UnitedHealth Group and WellPoint are Inside Value selections. Google is a Motley Fool Rule Breakers pick. The Motley Fool owns shares of inVentiv Health.The Fool has a disclosure policy..