Morningstar Advisor - February/March 2013 - (Page 68)

Screens Best Positioned for HealthCare Reform By David Krempa This screen finds companies ready to take advantage when major provisions of law take effect in 2014. In this issue’s stock screen, we search for attractive health-care stocks that could be a beneficial addition to investors’ portfolios. Sector With major provisions of the Patient Protection and Affordable Care Act set to take effect starting in 2014, the health-care sector is set to see its biggest change in decades. The new law, which is more commonly referred to as Obamacare, will present opportunities for firms that are positioned to take advantage of the new regulations. As a whole, our analysts believe that the impact on the sector will be largely neutral, as the inflow of newly insured patients will boost volumes, but it will be offset by new taxes and price controls. 68 Morningstar Advisor February/March 2013 And ( Economic Moat  Narrow Or  Healthcare the new law, we expect pricing pressure to increase, which will highlight the importance of moats. Firms selling a commoditized product without scale advantages are the most likely to experience a negative impact. However, some individual companies are in a position to benefit from the law, creating opportunities for investors.  Wide Economic Moat ) And Firms with economic moats have sustainable competitive advantages that limit the impact of competition. A moat can take the form of intangibles, such as pharmaceutical firms with patented products, scale advantages, or high switching costs like the robotic surgery machines made by Intuitive Surgical ISRG. Surgeons have been trained extensively on the machines, and hospitals have already sunk cost into purchasing the expensive machines, so it would be extremely burdensome to switch to a competing machine. With PCF  12 In addition to identifying strong businesses, we also want to make sure we are paying a reasonable valuation for the companies. We set the cutoff at companies trading at less than 12 times last year’s price to cash flow. And Morningstar Rating > 4

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2013

Morningstar Advisor - February/March 2013
Letter From the Editor
Social Media, the Old- Fashioned Way
Do You Use Active Strategies?
Youth Appeal
How to Buy the Unloved 2013
Morningstar Managers of the Year
Investments á la Carte
Investment Briefs
Approaches to Absolute-Return Investing
In Agriculture, It’s Good to Be Strong
Yes, There Are Good Active Funds
The Decoupling
Where It Could Pay to Be Active
The Active Fund That Defies Obsolescence
The Epitome of an Active Manager
Lines of Communication
The Existence of Market Timing ‘Intelligence’
A Route to Commodities that Bypasses the Futures Market
Best Positioned for Health-Care Reform
Diversified Stock Funds That Earn Their Stars
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
A Twisted Debate

Morningstar Advisor - February/March 2013