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Tickers in this Article: UNH, HUM, IMA, CELG
Healthcare is a hot sector for investors to follow given the growing needs of 77 million baby boomers and its prominent position in the ongoing U.S. presidential race. However, strong returns on investments in biotechnology from cancer fighters like Celgene (Nasdaq:CELG), versus market lagging returns from healthcare plan providers like Humana (NYSE:HUM) reveal that all healthcare investment options are not the same.

Before selecting a fund or investment with the healthcare label attached, investors should take the time to determine which stocks are most likely to boost portfolio health.

Fidelity Select Medical Delivery (Nasdaq:FSHCX) is a specialty healthcare fund, and it's down about 25% since the beginning of the year. The largest market underperformers in the fund's top 10 holdings include:

Among FSHCX Top 10 Holdings
Approximate YTD Returns (Aug. 5, 2008)
UnitedHealth Group (NYSE:UNH)
-50%
Humana (NYSE:HUM)
-37%
Inverness Medical Innovations (AMEX:IMA)
-40%

UnitedHealth Group Inc.
Plagued with payments for lawsuits related to options backdating and shrinking operating margins due to the rising costs of providing healthcare, UNH is searching for the road to recovery. Despite a growing number of enrollments and increasing premium rates received from customers in its healthcare plans, UNH's operating margin has fallen from 9.6% on $38 billion in revenue for the first six months of last year to 5.9% on $40 billion for the first six months of 2008. UNH has announced 4,000 job layoffs and is in the process of restructuring its business to better serve its customers. (For related reading, see Cashing In On Corporate Restructuring.)

Humana
Humana's stock tumbled more than $20 during March on concerns over expected revenues from its drug prescription program segment. Humana generates the majority of its revenues from its Medicare Advantage program. While its smaller drug prescription program continues to struggle, higher premiums and a large membership pool helped increase Medicare Advantage revenues 10% from the previous quarter to $3.49 billion. Humana's operating margin decreased to 3.38% on $14.3 billion in revenue for the first six months of the year, versus $12.6 billion in revenue a year ago. In similar fashion to UNH, higher enrollment numbers and higher premiums were not enough to offset rising medical service expenses.

Inverness Medical Innovations
Inverness may be best known for its Clearblue line of fertility tests. Since the beginning of the year, investors have apparently punished IMA's stock for its two-year acquisition binge. The acquisitions are part of IMA's strategy to become a leader in diagnostic tests that can be administered at home or in a physician's office. While reporting revenues of $401 million for the second quarter of 2008, IMA still recorded a loss of $33 million.

Final Thoughts
While the companies above have struggled, cancer drug therapy maker Celgene is up nearly 60% since the beginning of the year. Healthcare can offer investor protection against inflation and market volatility, but it's important for investors to choose the right slice of the pie before digging in.

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