(GuruFocus, September 25, 2009) State power, when exercised on individuals or individual companies or sectors, can cause unendurable pain. Every time the U.S. Government touches a sector of economy, it creates so much uncertainty and investors just want to run away from that sector.
As we witnessed, six months to one year ago, the strong hands of Uncle Sam were on the financial sector and investors did not know how to react so they fled. It took a while before they realize the tough love of the government and brave money flew back into the sector and made a killing.
Now the iron fist is on the health care sector. So much is at stake that everyone wants to help, from the president, to the senators, to the health care companies, to the lobby groups, to the union, to the uninsured, to the insured. I don’t pretend I have a solution to the nation’s health care problem. As a matter of fact, I have more questions than answers.
My first question is on the primary pain point for the health care reform, the runaway cost. Is that alone necessary a bad thing? One man’s cost is exactly another man’s revenue. Economic growth is measured by the percentage increase of aggregated revenue of everyone. Are we against growth?
Second question, still on the runaway cost, as it is multiple times of rate of inflation, my question is: inflation is an average of price increases of all the things we buy; so there are bound to be sectors growing factor than the average and sectors less than average, so if it is not health care, which sector can grow faster than average?
My third question is on the purpose of health care. With an aging population, you probably expect the health care cost has to grow faster than average. Also, healthy people are more productive people, how else can we expect our productivity to grow at 2-5% each year? I don’t know, nor do I think everyone talking about this issue on TV passionately care.
Let’s go back and talk about investment, for that is this website is all about. If the key to get excessive gain is to be greedy when other people are fearful and be fearful when other people are greedy, then now is the time to be greedy.
Let’s survey the field.
As a matter of fact, let’s take a step back. You know as individual investors, whenever we are in doubt, we can always choose to vote with our feet and go away. But what if you are Money Manager managing a health care sector only fund? You go…bananas?
Well, we happen to have such an Investment Guru on our list: Edward Owens, Manager of Vanguard Health Care Fund. Oh… he has been there forever, GuruFocus profile for Edward Owens says he has managed the fund since inception in 1984, “since before you were born”. For the ten years through July 31, 2009, the fund yanked out a gain of 7.53%, better than S&P 500 Standard & Poor’s Health
Care Index. The fund manages about $18.7 billion with only about $1 billion cash as of July 31, 2009, so there is no place to hide and Owens is not hiding. Check out yourself here.
So, why I am interested in the Edward Owens, all of sudden? In short, I want to make money. I want to see how bad things really are in the sector. Let’s take a look at the high dividend yield stocks that he owns:
Eli Lilly and Company (LLY, Financial) -- Yield = 6.1
Eli Lilly and Company discovers develops manufactures and sells products in one significant business segment -pharmaceutical products. The company directs its research efforts primarily toward the search for products to diagnose prevent and treat human diseases. The company also conducts research to find products to treat diseases in animals and to increase the efficiency of animal food production. Eli Lilly And Company has a market cap of $37.23 billion; its shares were traded at around $32.4 with a P/E ratio of 7.3 and P/S ratio of 1.9. The dividend yield of Eli Lilly And Company stocks is 6.1%. Eli Lilly And Company had an annual average earning growth of 4.4% over the past 10 years. GuruFocus rated Eli Lilly And Company the business predictability rank of 4.5-star.
Edward Owens owns 19,879,900 shares as of 06/30/2009, which accounts for 4.11% of the $16.74 billion portfolio of Vanguard Health Care Fund.
BristolMyers Squibb Company (BMY, Financial) -- Yield = 5.6
Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression schizophrenia and other mental disorders; pain; and other conditions. Bristolmyers Squibb Company has a market cap of $44.43 billion; its shares were traded at around $22.43 with a P/E ratio of 11.4 and P/S ratio of 2.2. The dividend yield of Bristolmyers Squibb Company stocks is 5.6%.
Owens owns 16,490,000 shares as of 06/30/2009, which accounts for 2% of the $16.74 billion portfolio of Vanguard Health Care Fund
Merck & Co. Inc. (MRK, Financial) -- Yield = 5
Merck & Co. Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Established in 1891 Merck discovers develops manufactures and markets vaccines and medicines to address unmet medical needs. The company devotes extensive efforts to increase access to medicines through far-reaching programs that not only donate Merck medicines but help deliver them to the people who need them. Merck also publishes unbiased health information as a not-for-profit service. Merck & Co. Inc. has a market cap of $65.4 billion; its shares were traded at around $31.01 with a P/E ratio of 9.5 and P/S ratio of 2.8. The dividend yield of Merck & Co. Inc. stocks is 5%.
Owens owns 22,071,200 shares as of 06/30/2009, which accounts for 3.69% of the $16.74 billion portfolio of Vanguard Health Care Fund.
GlaxoSmithKline plc (GSK, Financial) -- Yield = 4.8
GlaxoSmithKline is one of the world's leading research based pharmaceutical and healthcare companies and is committed to improving the quality of human life by enabling people to do more feel better and live longer. They also have leadership in four major therapeutic areas: anti-infectives central nervous system (CNS) respiratory and gastro-intestinal/metabolic. Glaxosmithkline Plc has a market cap of $100.99 billion; its shares were traded at around $38.93 with a P/E ratio of 11.1 and P/S ratio of 2.3. The dividend yield of Glaxosmithkline Plc stocks is 4.8%. Glaxosmithkline Plc had an annual average earning growth of 8.4% over the past 10 years. GuruFocus rated Glaxosmithkline Plc the business predictability rank of 3-star.
Owens owns 1,942,381 shares as of 06/30/2009, which accounts for 0.41% of the $16.74 billion portfolio of Vanguard Health Care Fund.
AstraZeneca PLC (AZN, Financial) -- Yield = 4.7
AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular gastrointestinal oncology anesthesia including pain management central nervous system (CNS) and respiratory products. They are engaged in the research development manufacture and marketing of ethical (prescription) pharmaceuticals and agricultural products and the supply of healthcare services. Astrazeneca Plc has a market cap of $64.94 billion; its shares were traded at around $44.06 with a P/E ratio of 8 and P/S ratio of 2. The dividend yield of Astrazeneca Plc stocks is 4.7%. Astrazeneca Plc had an annual average earning growth of 12.2% over the past 10 years. GuruFocus rated Astrazeneca Plc the business predictability rank of 2-star.
Owens owns 15,081,500 shares as of 06/30/2009, which accounts for 3.97% of the $16.74 billion portfolio of Vanguard Health Care Fund
Conclusion
The health care sector is being sold down lately, or should we say, it has not joined the rally as much as the general market. Currently, these household names in the sector are paying enticing dividend. Listed without exception these are big pharm companies. There are legitimate concerns on the patent protections for some of them are expiring, so how much is the fear for the government interventon and how much is the fear for the patent expiration?
Doesn’t matter, Edward Owens owns them all and he seems to be having good sleep at nights.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Edward Owensfor Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
P.S. The author has no position one way or another on the on-going health care reform debate. I just want to profit from it.
As we witnessed, six months to one year ago, the strong hands of Uncle Sam were on the financial sector and investors did not know how to react so they fled. It took a while before they realize the tough love of the government and brave money flew back into the sector and made a killing.
Now the iron fist is on the health care sector. So much is at stake that everyone wants to help, from the president, to the senators, to the health care companies, to the lobby groups, to the union, to the uninsured, to the insured. I don’t pretend I have a solution to the nation’s health care problem. As a matter of fact, I have more questions than answers.
My first question is on the primary pain point for the health care reform, the runaway cost. Is that alone necessary a bad thing? One man’s cost is exactly another man’s revenue. Economic growth is measured by the percentage increase of aggregated revenue of everyone. Are we against growth?
Second question, still on the runaway cost, as it is multiple times of rate of inflation, my question is: inflation is an average of price increases of all the things we buy; so there are bound to be sectors growing factor than the average and sectors less than average, so if it is not health care, which sector can grow faster than average?
My third question is on the purpose of health care. With an aging population, you probably expect the health care cost has to grow faster than average. Also, healthy people are more productive people, how else can we expect our productivity to grow at 2-5% each year? I don’t know, nor do I think everyone talking about this issue on TV passionately care.
Let’s go back and talk about investment, for that is this website is all about. If the key to get excessive gain is to be greedy when other people are fearful and be fearful when other people are greedy, then now is the time to be greedy.
Let’s survey the field.
As a matter of fact, let’s take a step back. You know as individual investors, whenever we are in doubt, we can always choose to vote with our feet and go away. But what if you are Money Manager managing a health care sector only fund? You go…bananas?
Well, we happen to have such an Investment Guru on our list: Edward Owens, Manager of Vanguard Health Care Fund. Oh… he has been there forever, GuruFocus profile for Edward Owens says he has managed the fund since inception in 1984, “since before you were born”. For the ten years through July 31, 2009, the fund yanked out a gain of 7.53%, better than S&P 500 Standard & Poor’s Health
Care Index. The fund manages about $18.7 billion with only about $1 billion cash as of July 31, 2009, so there is no place to hide and Owens is not hiding. Check out yourself here.
So, why I am interested in the Edward Owens, all of sudden? In short, I want to make money. I want to see how bad things really are in the sector. Let’s take a look at the high dividend yield stocks that he owns:
Eli Lilly and Company (LLY, Financial) -- Yield = 6.1
Eli Lilly and Company discovers develops manufactures and sells products in one significant business segment -pharmaceutical products. The company directs its research efforts primarily toward the search for products to diagnose prevent and treat human diseases. The company also conducts research to find products to treat diseases in animals and to increase the efficiency of animal food production. Eli Lilly And Company has a market cap of $37.23 billion; its shares were traded at around $32.4 with a P/E ratio of 7.3 and P/S ratio of 1.9. The dividend yield of Eli Lilly And Company stocks is 6.1%. Eli Lilly And Company had an annual average earning growth of 4.4% over the past 10 years. GuruFocus rated Eli Lilly And Company the business predictability rank of 4.5-star.
Edward Owens owns 19,879,900 shares as of 06/30/2009, which accounts for 4.11% of the $16.74 billion portfolio of Vanguard Health Care Fund.
BristolMyers Squibb Company (BMY, Financial) -- Yield = 5.6
Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression schizophrenia and other mental disorders; pain; and other conditions. Bristolmyers Squibb Company has a market cap of $44.43 billion; its shares were traded at around $22.43 with a P/E ratio of 11.4 and P/S ratio of 2.2. The dividend yield of Bristolmyers Squibb Company stocks is 5.6%.
Owens owns 16,490,000 shares as of 06/30/2009, which accounts for 2% of the $16.74 billion portfolio of Vanguard Health Care Fund
Merck & Co. Inc. (MRK, Financial) -- Yield = 5
Merck & Co. Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Established in 1891 Merck discovers develops manufactures and markets vaccines and medicines to address unmet medical needs. The company devotes extensive efforts to increase access to medicines through far-reaching programs that not only donate Merck medicines but help deliver them to the people who need them. Merck also publishes unbiased health information as a not-for-profit service. Merck & Co. Inc. has a market cap of $65.4 billion; its shares were traded at around $31.01 with a P/E ratio of 9.5 and P/S ratio of 2.8. The dividend yield of Merck & Co. Inc. stocks is 5%.
Owens owns 22,071,200 shares as of 06/30/2009, which accounts for 3.69% of the $16.74 billion portfolio of Vanguard Health Care Fund.
GlaxoSmithKline plc (GSK, Financial) -- Yield = 4.8
GlaxoSmithKline is one of the world's leading research based pharmaceutical and healthcare companies and is committed to improving the quality of human life by enabling people to do more feel better and live longer. They also have leadership in four major therapeutic areas: anti-infectives central nervous system (CNS) respiratory and gastro-intestinal/metabolic. Glaxosmithkline Plc has a market cap of $100.99 billion; its shares were traded at around $38.93 with a P/E ratio of 11.1 and P/S ratio of 2.3. The dividend yield of Glaxosmithkline Plc stocks is 4.8%. Glaxosmithkline Plc had an annual average earning growth of 8.4% over the past 10 years. GuruFocus rated Glaxosmithkline Plc the business predictability rank of 3-star.
Owens owns 1,942,381 shares as of 06/30/2009, which accounts for 0.41% of the $16.74 billion portfolio of Vanguard Health Care Fund.
AstraZeneca PLC (AZN, Financial) -- Yield = 4.7
AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular gastrointestinal oncology anesthesia including pain management central nervous system (CNS) and respiratory products. They are engaged in the research development manufacture and marketing of ethical (prescription) pharmaceuticals and agricultural products and the supply of healthcare services. Astrazeneca Plc has a market cap of $64.94 billion; its shares were traded at around $44.06 with a P/E ratio of 8 and P/S ratio of 2. The dividend yield of Astrazeneca Plc stocks is 4.7%. Astrazeneca Plc had an annual average earning growth of 12.2% over the past 10 years. GuruFocus rated Astrazeneca Plc the business predictability rank of 2-star.
Owens owns 15,081,500 shares as of 06/30/2009, which accounts for 3.97% of the $16.74 billion portfolio of Vanguard Health Care Fund
Conclusion
The health care sector is being sold down lately, or should we say, it has not joined the rally as much as the general market. Currently, these household names in the sector are paying enticing dividend. Listed without exception these are big pharm companies. There are legitimate concerns on the patent protections for some of them are expiring, so how much is the fear for the government interventon and how much is the fear for the patent expiration?
Doesn’t matter, Edward Owens owns them all and he seems to be having good sleep at nights.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Edward Owensfor Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
P.S. The author has no position one way or another on the on-going health care reform debate. I just want to profit from it.
