Tilson & Heins: Healthcare Fears Overdone

Add two more top strategists to those who say that healthcare reform fears are creating some bargains in the sector.

In their latest Kiplinger’s column — a piece on contrarian investing — Whitney Tilson and John Heins say they think the healthcare fears are overblown. “Investors fear that health-care reform will hurt the entire industry, a key reason that the sector trades at just 12 times earnings, or 36% below the P/E of the S&P 500 (historically, such high-quality businesses have commanded higher P/Es than the index),” Tilson and Heins write. “We think that the pessimism is overdone.”

One good way to play the sector, they say: Pfizer.

The drug giant is holding a ton of cash, and is trading “far too low for a company of its caliber,” Tilson and Heins write. Plus, it’s paying a 4% yield, a nice bonus for investors who wait for the market to recognize the stock’s real value, they say.

Tilson and Heins, who have been growing more conservative as the market has continued to rally, also offer some general tips on contrarian investing. “Value investors are contrarians at heart, buying what’s out of favor and selling that which the market loves,” they write. “But taking a contrarian view doesn’t by itself guarantee profits. After all, the market is usually right. To succeed as a contrarian, you must recognize what the crowd believes, have concrete justification for why the majority is wrong, and have the patience and conviction to stick with what is, by definition, an unpopular bet.”

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