|Forbes.com, Fall, 2013. This article was written with Oliver Pursche, the Co-Portfolio Manager of GMG Defense Beta Fund. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.|
One of the first tenants of successful investing is to keep emotions out of the equation.
This is particularly true today with the U.S. government having been shutdown and politicians from both sides of the aisle making ObamaCare a hot button issue.
While market volatility is certain to increase as we approach the debt ceiling deadline, I also believe markets will overcome this and set new highs by the end of the year—my new price target for the S&P 500 is 1,750 by December 31, 2013.
For now, let’s stick with the issue at hand and focus on sectors to avoid and to focus on as the health care reform act, aka ObamaCare, debate rages on. As is the case in almost any crisis, there are winners and losers. Regardless of how you may feel about the Affordable Health Care Act, I’m here to help you formulate a sound investment strategy.
ObamaCare aside, any investment must have a reasonable valuation along with strong growth prospects. Next the stock should be poised to benefit from the overall economic and demographic trends that are occurring. Demographic trends, specifically the aging of the population, are predictable and cannot be altered by political objectives.
No matter how ObamaCare plays out, we are all living longer and consuming pharmaceuticals to help us do so and Rite Aid and CVS Caremark are poised to benefit from this trend.
By the same token, the prospects for benefit managers, which, as a whole, already handle more than half of all prescriptions written should benefit. I’d expect Express Scripts to be one of the winners.
The ObamaCare issue is ironically most helpful in determining which sectors to avoid. Until we have more clarity in how the law will be enforced, several categories may suffer as it is written now, namely large franchise firms and the engineering and technology sectors.
Why? In the case of the franchisers including Dunkin’ Brands (DNKN) and McDonald’s (MCD), the fact that they own multiple stores and have more than 50 employees may trigger onerous costs since one of the provisions in the law is that any employee working more than 30 hours would be considered full-time for purposes of qualifying under the law.
Conversely, franchise companies such as Starbucks that are growing aggressively internationally and earning an increasing share of their profits from overseas, could thrive—at least on a relative basis.
Engineering and technology firms like Oracle and Intel (INTC) may be hit not because they have low-paid workers but because they have skilled, highly paid employees. Those employers will potentially have to pay a 40% excise tax to maintain their high-end plans.
For investors, ObamaCare provides opportunities especially if they can avoid getting emotional over the politics and their personal opinions of the law. At least for the short term, most of ObamaCare is moving along, and investors should acknowledge that it provides opportunity, but not get distracted by the politics.
Disclosure: MCD, SBUX, ORCL, INTC are holdings in separate accounts at GGFS as well as in The GMG Defensive Beta Fund.