Healthcare’s role as a safe haven during Wall Street downturns is being put to the test.
The largest local healthcare stocks haven’t been immune to the latest market plunge that started in December.
Most have fared better than Standard & Poor’s 500 index since mid-December, though all were down for the period as of late last week.
Irvine drug maker Allergan Inc., heart valve maker Edwards Lifesciences Corp., also of Irvine, and Fullerton’s Beckman Coulter Inc. fared better than the S & P; 500’s 10% drop. Apria Healthcare Group Inc. of Lake Forest did worse.
Despite a rebound late last week, Wall Street has been assaulted by concerns about subprime loans, tightening credit and a slowing economy.
“There’s just a certain element of the market that you can’t escape,” said Jeff Martin, associate director of research for Roth Capital Partners LLC, a Newport Beach investment bank.
No matter how good a company’s business, in a down market it’s likely there will be some pressure on investors to sell, he said.
Traditionally, healthcare’s predictable markets, an aging population and dependable insurer, hospital and government customers have made it steadier when the broader market and economy head south.
The tradeoff is healthcare stocks don’t do as well as others during runups on Wall Street.
Mutual, pension and hedge funds are likely to move money into healthcare stocks and funds that invest in healthcare, said Dennis McCarthy, a managing director with Los Angeles-based B. Riley & Co., an investment bank with a Newport Beach office.
Essential vs. Elective
How healthcare stocks fare in the downturn also depends on the particular company. Those that provide products and services that are essential,think heart valves or medical testing gear,tend to perform better during downturns.
So far that hasn’t been the case.
Allergan,seller of Botox and breast implants,has fared better than heart valve maker Edwards and testing gear maker Beckman. That could change in a prolonged bear market.
Allergan is OC’s most valuable company with a market value of nearly $20 billion last week.
Edwards, whose shares are down about 3% since mid-December, is wrestling with stepped up competition from Minnesota’s St. Jude Medical Inc.
Some analysts argue Edwards, with a recent $2.6 billion market value, needs new products to regain market share.
The company expects a clinical trial of a potential blockbuster heart valve that doesn’t require major surgery for implantation during the first half of this year.
Apria Healthcare, a provider of healthcare to patients in their home, has fared worse than the overall market in the past few weeks. Last week, its shares were down about 15% since mid-December.
The company’s stock tends to move more on concerns about Medicare reimbursement, which makes up a third of its yearly revenue of $1.6 billion.
The recent decline comes in spite of a report from UBS analyst Donald Hooker, who upgraded Apria from “sell” to “neutral” because there may not be big cuts to Medicare reimbursement. The House of Representatives might accept a Senate Medicare bill that would be more “provider friendly,” he said.
Apria had a market value of $900 million last week.
Another OC health company that has slumped since mid-December is Advanced Medical Optics Inc., the Santa Ana maker of eye surgery products and contact lens solutions. As of last week, Advanced Medical’s stock is down 19% with a market value of $1.2 billion.
