Sector Analysis

Healthcare

Anurup UpadhyayBUS 416 Investment Management

3/5/14

What Does Healthcare Constitute?

The Healthcare Industry

• A category of stocks relating to medical and healthcare goods or services

• Hospital management firms, HMOs, biotechnology and medical products’ providers

• Typically considered defensive stocks

• Typically less sensitive to business cycle fluctuations

- Investopedia.com

More Specifically…Specialized Health

Services Health Care Plans

Medical Practitioners Drugs - GenericMedical Labs &Research

Drug Related Products

Instruments & Supplies

Manufacturers - Other

Appliances & Equipment

Manufacturers - Major

Long-Term Care Facilities Drug Delivery

HospitalsDiagnostic Substances

Home Health Care Biotechnology- Yahoo Finance

S&P 500 Sector Breakdown

- S & P Dow Jones Indices

SMIF Holdings in Healthcare

As of 2/16/14

Company % Holding Sub-SectorUnited Health Group

Inc. 3.01% Healthcare Plans

Stryker Corp. 3.42%Appliances &

Equip.

Pozen Inc. 1.62% Drug Manf. - Other

Pfizer Inc. 1.30% Drug Manf. - Major

Parexel Int’l Corp. 1.48% Labs & Research

Total 10.83%

Leading Sub-Sectors

In Terms Of Leader Value

Sector Averag

e

Market Capitalization

Drug Manufacturers -

Major63,211.42

B5477.2

B

P/E Ratio Biotechnology 376.5 50.8

ROE Hospitals 153.40% 19.25%

Dividend YieldMedical

Practitioners 5.751 1.477

Net Profit Margin

Drug Manufacturers -

Major 17.50% 6.39%- Yahoo Finance, as of Feb. 25, 2014

2014 Global Healthcare Sector Outlook

- Deloitte Touche Tohmatsu Limited

• Global health care spending as a percentage of Gross Domestic Product (GDP) to average 10.5%

• Annual average spending to increase by 5.3%

• Emerging markets: China, India, Indonesia, Russia, Mexico

Top Issues and Trends

- Deloitte Touche Tohmatsu Limited

• Aging Population and Chronic Diseases

• Cost and Quality

• Access to Care

• Technology

The Good News for 2014

- PricewaterhouseCoopers LLP

• Biotech and medical devices and equipment rank in top five for corporate venture capital investments• Biotech second @ $644.95

million• Medical devices & equipment

fourth @ 340.73 million

• Research and development an economic engine in consumers’ eyes• 69% agreed in 2013 while

61% agreed in 2011

A Case For Biotechnology• Highest P/E in the industry; although

volatile/unpredictable

• New discoveries for disease treatment conducive to growth/gains in stockholder value

• Patented biotech drugs enjoy a 12-year period of protection from competitors, guaranteeing favorable long-term returns

• Hurdles: Short-term lossesFDA regulation

I am recommending that we buy 57 shares of Amgen, Inc. for approximately $126.18 per share for an approximate total of $7192.26. This represents approximately 2.87% of the portfolio.

Why 2.87%? = S&P 500 Healthcare Weight – SMIF Healthcare Weight= 13.7% - 10.83%= 2.87%

• Established in 1980; discovers, develops, manufactures and markets human therapeutics based on cellular and molecular biology advances

• Presence in more than 50 countries worldwide

• Specializes in treatment of cancer, kidney disease, rheumatoid arthritis, bone disease and other serious illnesses

• First-of-its-kind company to heavily research human therapeutics (eg. Immunotherapy)

- Amgen Official Website

• Amgen-Betta Pharmaceuticals joint venture established in China

• Amgen Astellas BioPharma K.K. announces Japan alliance

• Amgen breaks ground on innovative manufacturing facility in Singapore

• Amgen acquires Onyx Pharmaceuticals

Amgen, Inc. Developments 2013-14

- Yahoo Finance, NY Times, Amgen Official Website

Amgen vs. S&P 500

- MSN Money, 2014

Overview & Comparison

• Timeliness: 3; Safety: 1; Technical: 3

• Strong product portfolio to facilitate continued growth, stability

• Broadening customer base (Onyx)

• Numerous clinical trials ongoing

• A nice addition to just about any account

Value Line Highlights (Dec, 2013)

• Thomson Reuters (Feb., 2014):

What Do Analysts Say?

Rec. Trends Feb. Jan. Dec. Nov.

Strong Buy 5 4 4 4

Buy 8 9 9 8

Hold 14 13 12 12

Underperform

0 0 0 0

Sell 0 1 1 1

• Zack’s Rating (Feb. 28, 2014): • Neutral – Outperform ($148) • One of the five strong buy stocks

• Seeking Alpha (Feb., 2014)• Amgen to see significant sales growth between

now and 2017 and continued sales growth through 2023 due to growth from Onyx-acquired products

• Growth from Amgen's current pipeline products without even considering future pipeline products

• Important to select undervalued stocks and Amgen one of them

What Do Analysts Say?

Questions