Before Jumping Into A Single Health Care Stock Consider This ETF

“The healthcare sector has never seen anything like this and neither has the American public. After months of political wrangling, the Affordable Health Care for America Act was signed into law by the President. The Act will extend health insurance coverage to roughly 30 million Americans without it. The new law would also require most Americans to purchase health insurance coverage and it would provide subsidies for private healthcare to low and middle income families.mIn the meantime, as the legislative details on the measure are worked out, investors are asking what does it mean for the health care sector? Is it doomed,” Ron DeLegge Reports From ETF Guide.

DeLegge goes on to say, “It’s still too early to project the ultimate impact of the new health care bill on the overall health care sector. For example, with health coverage becoming a requirement, health insurers will have more customers, but they will also be forced to accept higher risk clients with pre-existing conditions. Additionally, health insurers will face new competition from government subsidized plans. According to New York-based AltaVista Research, health care stocks inside the S&P 500 are trading at a discount to the market. Based upon 2010 earnings estimates, health care stocks currently trade at a P/E ratio of 11.8, which is a discount to the S&P 500’s 14.1 multiple. Earnings per share (EPS) growth are expected to rise 7.5% based upon 2010 estimates.”

“A radical transformation of the healthcare sector is now underway. There will be losers and winners. And attempting to decipher which individual companies will lose and which ones will win is mostly a loser’s game. Instead of trying to handpick health care stocks, diversified health care ETFs are a smart way to capitalize on the evolving dynamics within this industry sector,”  DeLegge Reports.

DeLegge makes a great point on how difficult and risky it is to handpick health care stocks, which is why ETFs offer great way to play the new historic reform.  We have put together some information on one of the most popular health-care ETFs. The Select Sector SPDR Health Care ETF (XLV) has great liquidity and has some of the biggest names in the industry in it’s holdings.  See the details below:

The investment (XLV) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Health Care Select Sector Index. This fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. It has also adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in a its policy or its underlying index. It is nondiversified.

Components and weightings as of 3/19/10.

  Name Symbol Index Weight
2 Pfizer Inc. (PFE) 10.59%
3 Merck & Co. Inc. (MRK) 9.20%
5 Amgen Inc. (AMGN) 4.57%
6 Medtronic Inc. (MDT) 3.86%
7 Bristol-Myers Squibb Co. (BMY) 3.48%
8 Gilead Sciences Inc. (GILD) 3.36%
9 UnitedHealth Group Inc. (UNH) 3.11%
10 Eli Lilly & Co. (LLY) 2.85%
11 Baxter International Inc. (BAX) 2.81%
12 Medco Health Solutions Inc. (MHS) 2.45%
13 WellPoint Inc. (WLP) 2.30%
14 Celgene Corp. (CELG) 2.29%
15 Express Scripts Inc. (ESRX) 2.27%
16 Thermo Fisher Scientific Inc. (TMO) 1.58%
17 Allergan Inc. (AGN) 1.57%
18 Becton Dickinson & Co. (BDX) 1.49%
19 McKesson Corp. (MCK) 1.38%
20 Biogen Idec Inc. (BIIB) 1.28%
21 Stryker Corp. (SYK) 1.26%
22 Genzyme Corp. (GENZ) 1.26%
23 Aetna Inc. (AET) 1.18%
24 Intuitive Surgical Inc. (ISRG) 1.05%
25 St. Jude Medical Inc. (STJ) 1.02%
26 Cardinal Health Inc. (CAH) 1.02%
27 Zimmer Holdings Inc. (ZMH) 0.96%
28 Boston Scientific Corp. (BSX) 0.84%
29 CIGNA Corp. (CI) 0.82%
30 Life Technologies Corp. (LIFE) 0.75%
31 Forest Laboratories Inc. (FRX) 0.74%
32 Hospira Inc. (HSP) 0.72%
33 Humana Inc. (HUM) 0.71%
34 Quest Diagnostics Inc. (DGX) 0.69%
35 C.R. Bard Inc. (BCR) 0.66%
36 AmerisourceBergen Corp. (ABC) 0.65%
37 Laboratory Corp. of America Holdings (LH) 0.61%
38 Mylan Inc. (MYL) 0.54%
39 Millipore Corp. (MIL) 0.52%
40 Varian Medical Systems Inc. (VAR) 0.51%
41 DaVita Inc. (DVA) 0.51%
42 Waters Corp. (WAT) 0.47%
43 Cephalon Inc. (CEPH) 0.42%
44 Dentsply International Inc. (XRAY) 0.39%
45 Watson Pharmaceuticals Inc. (WPI) 0.35%
46 CareFusion Corp. (CFN) 0.35%
47 Coventry Health Care Inc. (CVH) 0.30%
48 King Pharmaceuticals Inc. (KG) 0.25%
49 Patterson Cos. Inc. (PDCO) 0.22%
50 PerkinElmer Inc. (PKI) 0.22%
51 Tenet Healthcare Corp. (THC) 0.20%

Chart for Health Care Select Sector SPDR (XLV)

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