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John Rogers Commentaries on Healthcare Stocks: BIO, RX, TMO, LH, HSP, ZMH, MRK

In the quarterly letter published March 31, 2009, we addressed why big decisions matter. We wrote: “[I]t is the big decisions in periods of maximum optimism or pessimism (like now) where money managers really earn their track records.” One of our recent big decisions has been to increase our exposure to the health care sector. This process began, slowly, in early 2007 but has accelerated in the second quarter of this year. Currently, two issues are negatively impacting the health care sector. First, the market fears a weak pipeline cannot replace the large number of blockbuster drugs facing patent expirations. Secondly, unknowns that may result from recent attempts at health care reform loom large. We do not have any special insight on the outcome of either perceived problem. Rather, we know such worries come up time and time again and are usually overblown. Therein lies the investment opportunity.

First, we bought more shares in companies we have owned for years—such as Bio-Rad Laboratories, Inc. (BIO), IMS Health Inc. (RX), and Thermo Fisher Scientific Inc. (TMO). We have also added four new health care positions since mid-2008: Laboratory Corp. of America Holdings (LH), Hospira, Inc. (HSP), Zimmer Holdings, Inc. (ZMH), and Merck & Co., Inc. (MRK).

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