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Please scroll all the way down. I think these 3 are winners in the
long run...also perfect for selling naked Puts at the right price.
John
Special Report - Healthcare Stocks
Source: Bull Market Report www.BullMarket.com
Special Report
THE BABY BOOMER EFFECT -- HEALTHCARE STOCKS POISED TO
PROFIT FROM AN AGING U.S. POPULATION
There has never been a better time to invest in the
Healthcare Sector than now. The increasing ability of modern
medicine to prolong and sustain life, combined with an aging U.S.
population, has set the stage for unprecedented growth in the
Healthcare industry. And much to the delight of Wall Street, the
government looks to be shying away from any further healthcare reform
legislation -- yet another catalyst for this sector.
With this in mind, we expect investors to reap literally
BILLIONS in profits from investing in leaders in the Healthcare arena
over the next few years. Let us be very clear. We believe that some
long-term oriented investors are going to grow very rich by investing
in this sector today. The forecasted growth opportunities here are
simply staggering. The Health Care Financing Administration
estimates that national healthcare spending will double from $1.3
trillion in 2000 to $2.6 trillion in 2010. That's 100% growth in
just a decade!
The thesis behind investing in Healthcare is pretty
simple. We all get sick and need medicine and medical attention at
some point. And due to the wonders of modern medicine, many of us
are overcoming illnesses and living longer than ever before. With a
longer lifespan, most folks are going to spend much more on medical
care than their parents ever did. In other words, the BETTER modern
medicine becomes the LARGER the profits become for the sector.
The allure of investing in Healthcare doesn't end there.
The U.S. population is clearly aging. Today, over 34 million
Americans are over the age of 65, and this age group accounts for
more than one-third of all healthcare spending. Over the next 30
years, this group is projected to double in size. And as the "baby
boomer" generation gets older and hits age 55 and above, the amount
of medical attention this large demographic requires will likely
provide a huge boon to the Healthcare sector.
Thus, while the Healthcare sector does hold some risks
(mainly potential future government intervention), we believe this
area will richly reward investors in the next few years as Wall
Street fully wakes up to the dominance a handful of companies have
already established across the industry. With this in mind, the
research team here at The Bull Market Report has dedicated much of
its time over the past few months to selecting what we believe are
four of the most promising healthcare stocks.
So without further ado, we bring you our THREE MUST-HAVE
HEALTHCARE STOCKS THAT WILL SUPER-CHARGE YOUR PORTFOLIO:
LINCARE HOLDINGS: This company is the nation's second
largest providers of oxygen and related respiratory therapy services
to the home. With high gross margins (85%) and juicy operating
margins (30%), Lincare is poised to post record profits for years to
come. As the overall U.S. population ages, we're going to see an
even greater -- and longer term -- need for home respiratory therapy
services.
SUNRISE ASSISTED LIVING: With over 20 years of
experience, this company is one of the largest providers of assisted
living services. Sunrise operates nearly 200 homes and has a
resident capacity in its facilities of over 15,000. A de-leveraged
balance sheet and veteran management team have the firm poised to
profit handsomely from the influx of new residents to their homes
over the next decade.
UNITEDHEALTH GROUP: As the second-largest health insurer
in the U.S., the company currently serves over 16.5 million
individuals through four primary operating segments. We believe
UnitedHealth is an excellent investment proxy on overall healthcare
spending growth. After all, this expertly managed giant has grown
earnings at an impressive and consistent 25% annual rate over the
past decade.
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LINCARE HOLDINGS (LNCR)
Lincare Holdings is a provider of oxygen and related
respiratory services to patients in the home. Lincare's customers
typically suffer from chronic obstructive pulmonary disease and
require respiratory therapy services to alleviate their symptoms.
The company serves over 335,000 customers in 46 states through 596
operating centers. Lincare's oxygen and related respiratory services
currently account for nearly 90% of its sales. In addition, the firm
offers its customers a variety of infusion therapies in certain
geographic markets and provides its customers with home medical
equipment and supplies.
Lincare's customers typically come via referral from a
physician or hospital discharge planner. During the period when a
home respiratory company provides services for a customer, the
patient typically remains under the physician's care. Thus,
physicians are very selective about which firm they choose to
recommend. After Lincare diagnoses a new customer, one of the
company's representatives administers the prescribed therapy in the
patient's home. The frequency of the Lincare representative's
patient visits depends on the type of therapy being administered.
LINCARE: A LEADING CONSOLIDATOR OF THE HOME RESPIRATORY
THERAPY MARKET
The home respiratory therapy market has historically been
a fragmented industry filled with dozens of local and regional
operators. Over the last few years, however, this market's dynamics
have changed dramatically with the emergence of acquisition-hungry
players like Lincare that have rapidly "rolled-up" the sector. By
acquiring and integrating over 150 home respiratory companies to
date, Lincare has emerged as one of the nation's largest home
respiratory therapy firms in the past few years. In 2001, Lincare
gobbled up 18 local or regional companies with operations in 12
states.
The company hasn't grown just via acquisitions, though.
Lincare added a record 39 new locations through internal expansion
last year. This internal and organic growth led to the opening of 54
new Lincare operating centers during 2001. The long-term growth
outlook for Lincare's market continues to look promising. The firm
estimates that the home respiratory market is now roughly $4 billion
in annual sales, with growth in services estimated at approximately
7% per year over the last five years. Aging U.S. "baby boomers"
should keep this growth rate steady (if not increasing!) for years to
come.
SELLING "AIR" OFFERS FAT MARGINS AND JUICY PROFITS
It's easy to see why Lincare CEO John Byrnes has moved
aggressively over the past few years to consolidate the home
respiratory therapy market. Not only does the home respiratory
services market have years of solid growth still ahead of it, but the
business also has inherently great profit margins. Thus, for good
operators, selling "air" (oxygen) can be super-profitable (and even
more so with the size and scale that a dominant service provider like
Lincare enjoys). For example, Lincare posted a 2001 gross margin of
roughly 85% and enjoyed operating margins of nearly 30%.
For 2001, Lincare saw sales rise 16% to $810 million, as
operating income rose 24% to $145 million before special items.
Overall, the company's financial position looks very solid right
now. Lincare's long-term debt (including current maturities of bank
debt) currently stands at a little over $170 million. This
represents a very manageable debt-to-total-capitalization ratio of
18%. With Lincare generating over $230 million in cash from
operating activities last year, we have the utmost confidence that
the firm will not run into any problems servicing its debt in the
near future.
Consensus estimates for 2002 call for Lincare to report
earnings per share of $1.70 on revenue of $960 million, an 18%
increase in sales. Looking further out, analysts expect Lincare to
top $1 billion in sales for the first time in fiscal 2003 and for the
respiratory therapy company to generate earnings of $2.00 per share.
We believe all of these aforementioned targets are very achievable.
Lincare has posted average earnings growth of nearly 15% over the
past three years, and we expect this brisk growth rate to continue
(if not increase) over the next three-to-five years.
GREAT BUSINESS MODEL AT AN ATTRACTIVE VALUATION
In summary, we find little not to like about Lincare's
future. For one, the company generates great margins (gross margins
of 80% and operating margins of 30%) and solid bottom-line profits.
Further, the respiratory therapy services market continues to grow at
a steady clip of 7% per year, and Lincare has established itself as
one of the leading consolidators of this industry. Finally, we
believe that Lincare's dominant size and scale will allow the firm to
capture new sales (via internal and acquisition-driven growth) while
squeezing back-end operating costs.
Overall, we also like the simplicity of Lincare's
business. It's easy to see how the company sells its services,
generates cash and posts profits. We believe its business is a good
play on the aging U.S. population (the older we all get, the more
likely that MANY of us will, unfortunately, develop respiratory
problems). Plus, Lincare's stock trades at a very affordable price.
With a projected forward P/E ratio of roughly 17, Lincare is valued
at a significant discount to the S&P 500's 2002 PE in the mid-20s,
yet the firm offers a higher long-term growth rate than this
benchmark index.
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SUNRISE ASSISTED LIVING (SRZ)
Sunrise Assisted Living is an international provider of
assisted living services. With more than 20 years of operating
experience, Sunrise is widely regarded as one of the pioneers of the
modern assisted living movement. The company currently has 191
communities in operation with 20 properties under construction and 35
additional properties under various stages of development. Sunrise
has a resident capacity of more than 15,250. The company's
facilities are geared to providing assisted living for seniors who
can no longer live on their own, but who do not require complex
medical care.
Sunrise's Victorian-style model facilities generally have
a capacity of 65 to 110 residents and range in size from
approximately 37,000 to 65,000 square feet. Each model facility is
generally two or three stories, and each sits on a site ranging from
two to five acres. Each facility dedicates approximately 40% of its
square footage to common areas to help promote interaction among the
residents. While each facility is residential in appearance, the
units are made of steel frame construction and are built to
institutional healthcare standards.
GROWING DOMESTICALLY AND INTERNATIONALLY
During 2001, Sunrise added 22 homes to its operating
portfolio, a 13% increase. Of the 17 new development openings last
year, 13 were in the U.S. and four were in Canada. The remaining
five homes were properties where Sunrise took over management of the
facilities for an existing third-party owner. The firm expects to
take over management of an additional 10-15 third-party properties
during 2002. We like Sunrise's new move in this direction, as third-
party management should generate additional earnings with little-to-
no capital requirements.
For 2002, Sunrise expects to open 20 new homes that are
currently under construction. Fifteen of these new openings will be
in the U.S., with the remaining five in international markets like
the U.K. and Canada. Overall, Sunrise expects to increase its
operating portfolio in 2002 by 30-35 homes (16-19%) through the
opening of these 20 new Sunrise developed properties and the addition
of 10-15 new management contracts for third-party properties. And in
an effort to boost the quality of its operating portfolio, Sunrise
expects to sell a total of 15-20 properties this year.
GOOD FINANCIAL RESULTS FOR 2001 AND AN IMPROVING BALANCE
SHEET
On the financial front, Sunrise was able to ride out the
weak economy in 2001 with respectable results. Sales rose 24% last
year to $430 million, while EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) jumped 19% to $130 million (excluding
$2 million of non-recurring income). Net income for 2001 came in at
$45 million, or $2.00 per share, an 80% increase. This was all the
more impressive in light of the fact that Sunrise's shares
outstanding rose from 22 million to 26 million last year.
Sunrise also managed to reduce its debt load by $50
million to $580 million at year-end 2001. While we would still like
to see this debt load get significantly smaller, Sunrise is clearly
moving in the right direction on this front. In fact, Sunrise has
only $25 million of debt maturing in the next 12 months. The low
interest rate environment has offered Sunrise a great opportunity to
lower its overall borrowing costs and reduce its overall debt. With
this in mind, during the past year Sunrise re-financed, renewed or
obtained debt facilities for itself or joint ventures in excess of
$700 million.
While many assisted living operators have been struggling
just to stay alive over the past 36 months, Sunrise has managed to
grow its earnings a whopping 75% over the past three years. And the
growth engine at Sunrise still appears to be on track, especially
with the economy showing signs of a strengthening recovery. Sunrise
expects 2002 earnings per share of $2.30, which would represent 15%
annual earnings growth. Consensus is for sales to rise 9% to $465
million this year. Even better, analysts expect Sunrise to deliver
long-term earnings growth of 15%.
A GREAT PLAY ON THE AGING "BOOMER" POPULATION
Overall, we really like what we see lately from Sunrise
Assisted Living. Here is a firm that is successfully generating REAL
earnings in not only a tough economy, but also an industry that has
been littered with bankruptcies and restructurings in recent years.
In addition, we are excited by Sunrise's move into higher margin home
management services (this should further boost earnings!), as well as
its continued goal of reducing debt. Finally, looking at the bigger
picture, Sunrise's business is only going to grow a lot bigger as a
greater proportion of the American population reaches age 65 and
begins entering the assisted living arena.
While we aren't thrilled with the company's debt level,
it's important to note that Sunrise DID generate over $100 million in
INCOME from operations last year. In other words, Sunrise isn't some
Telecom or Tech company without cash flow to service its debt, but
it's still something any potential investor should watch. So far,
Wall Street appears to be taking a wait and see approach to Sunrise
and the assisted living sector in general. While the firm clearly
remains on track for long-term earnings growth in the mid-teens, the
stock still trades at a forward P/E multiple of only 12-13. At these
prices, it now looks like a good time to be scooping up shares. We
expect this name to really shine over the next year or two as Sunrise
continues to execute.
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UNITEDHEALTH GROUP (UNH)
UnitedHealth Group is the second largest health insurer
in the U.S. behind Aetna (AET). The company offers a wide variety of
healthcare plans, services and resources dedicated to helping people
improve their health and well being through all stages of life. The
company currently serves 16.5 million individuals through four
operating segments. The operating segments for this FORTUNE 100
giant include: Health Care Services, Uniprise, Specialized Care
Services and Ingenix.
UNITEDHEALTH GROUP'S OPERATING SEGMENTS UP CLOSE
A brief overview of these four operating segments is as
follows:
1. Health Care Services: ($20.5 billion in 2001 sales)
UnitedHealthcare: Coordinates network-based health
insurance plans (HMO, PPO, and POS) on behalf of local employers and
consumers nationwide. This business currently serves over 7 million
individuals. United Healthcare also serves roughly 400,000 Medicare
and 550,000 Medicaid eligible individuals.
Ovations: Focuses on providing Medicare and Medicaid
options to enrollees over the age of 50. In January of 1998, this
segment signed a 10-year partnership with American Association of
Retired Persons to provide affordable Medicare Supplement and
Hospital Indemnity insurance to more than 3.5 million members.
2. Uniprise: ($2.5 billion in sales)
Manages health insurance plans for large organizations.
Uniprise's core competencies are in large volume transaction
management, large-scale benefit design and administration for large
organizations. It currently has over 260 clients representing 6.7
million individuals. The segment also offers human resources and
benefit administration services to large organizations.
3. Specialized Care Services: ($1.3 billion in sales)
Operates a portfolio of companies offering specialized
care services in niche areas. These areas of coverage include vision
care, dental care, transplant and critical care services. The
segment's United Behavioral Health provides behavioral healthcare
management services and products that reach almost 19 million
individuals.
4. Ingenix: ($450 million in sales)
Provides business-to-business healthcare data and
information, research, analysis and application services to a wide
variety of health related companies. These firms include government
agencies, health insurers and other payers, care providers, large
employers and pharmaceutical companies.
RECORD RESULTS EVEN AMIDST A TOUGH ECONOMY
For all intents and purposes, UnitedHealth turned in a
rock solid financial performance last year. For starters,
UnitedHealth's sales rose 11% to $23.5 billion for 2001, as it
reported earnings from operations of $1.6 billion. In addition, the
company's operating margin expanded a full 100 basis points from 5.7%
to 6.7%. Full year net earnings increased to a record $915 million
or $2.79 per share, a 30% annual increase, and cash flow from
operations exceeded $1.8 billion for the year, up 21%. It is also
worth noting that UnitedHealth's average-revenue per full-time
equivalent employee increased 5% during 2001.
Delivering reliable annual financial numbers is really
nothing new for UnitedHealth. In fact, the company's earnings have
grown at a 25% annual compounded rate over the past decade, rising
from 30 cents per share in 1991 to $2.79 per share in 2001! This
rock solid growth looks likely to continue well into the current
decade. Guidance from UnitedHealth calls for earnings to grow an
impressive 25% for 2002 (which clearly looks conservative!).
UnitedHealth appears confident that the higher premiums it's been
charging its customers will more than offset rising medical costs,
resulting in expanding annual earnings.
For 2002, consensus is for UnitedHealth to post sales of
$25.3 billion and earnings per share of $3.86 (38% growth). Over the
next 5 years, analysts expect UnitedHealth to deliver earnings-per-
share growth of 18%, which based on our own analysis of UnitedHealth
and the Healthcare industry as a whole certainly looks achievable.
Not only has UnitedHealth been great at reigning in costs and
expanding margins, but customers actually LIKE doing business with
the firm. Under the guidance of CEO Dr. William McGuire,
UnitedHealth has been named the first or second most admired
healthcare company in America by FORTUNE magazine every year since
1995.
GREAT ASSETS AT AN ATTRACTIVE VALUATION
In addition to the company's great assets and strong
balance sheet (nearly $1.7 billion in cash), UnitedHealth's current
valuation makes the stock look particularly appealing to our eyes.
After all, here is a stock with arguably the most powerful healthcare
insurance franchise in the entire U.S. that sports a forward P/E in
the 25 range. A forward P/E of at least 30 seems very achievable and
deserving in our view. With a $28 billion-plus market cap and
predictable annual earnings, we expect UnitedHealth to become one of
the preferred vehicles of choice among institutional investors for
riding the Healthcare industry's growth wave.
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SUMMARY
In summation, the Healthcare Sector is sitting right now
on the cusp of enjoying its largest single period of sustained growth
EVER. And it doesn't take a rocket scientist to realize that
billions of profits will be reaped from investing in the leaders in
this sector as the industry grows from $1.3 trillion to $2.6 trillion
over the next decade.
As the population ages and modern medicine improves, it's
obvious that the need for a greater overall quantity of healthcare
related services -- from assisted living and acute care hospitals to
health insurance and home respiratory services -- can only INCREASE.
With this in mind, we believe we've provided you with four high
quality stocks that can have you profit handsomely from this sector's
growth.
We hope you've enjoyed reading this report just as much
as we've enjoyed researching and putting it together.
Good investing!
Todd Shaver
Editor in Chief
BullMarket.com
DISCLAIMER
The Bull Market Report, LLC is not a registered
Investment Adviser or a Broker/Dealer. Readers are advised that the
report is issued solely for informational purposes and is not to be
construed as an offer to sell or the solicitation of an offer to
buy. The opinions and analyses included herein are based from
sources believed to be reliable and written in good faith, but no
representation or warranty, expressed or implied is made as to their
accuracy, completeness or correctness. Owners, employees and writers
may have positions in the securities that are discussed in the
newsletter.
Readers are urged to consult with their own independent
financial advisors with respect to any investment. All information
contained in this report should be independently verified with the
companies mentioned.
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