Buy Into Long-Term Care

By Greg Sushinsky | December 28, 2010 AAA

As the U.S. population continues to age, the expansion of healthcare becomes a paramount concern. Nursing homes and other forms of long-term care are assuming a more prominent place in the country's healthcare profile. With the expansion of such healthcare services, more investors might want to take a look at long-term care stocks.

IN PICTURES: 8 Great Companies With Top-Notch Healthcare Benefits

A Variety of Services, Businesses
Long-term care includes skilled nursing facilities such as anything from rehabilitation centers to nursing homes, hospital equipment and more. A look at one of the providers, National Health Care Corp. (NYSE Amex:NHC), shows that it's involved in homecare, assisted living, independent living and Alzheimer's care - and even this list isn't exhaustive. Investors want to know how well these businesses do. A glance at National Health Care's third-quarter earnings shows a 26.9% increase in net income over the year's previous quarter on a 5.9% increase in revenue. Its nine-month results for 2010 are robust as well. With the solid performance, the stock is trading near its 52-week high.

Long-Term Success
Sun Healthcare Group
(Nasdaq:SUNHD) is a long-term turnaround story. Back in 1997 the company was overleveraged and filed for bankruptcy, but has since had new leadership and focus. It successfully re-made itself, as it sold off several ancillary businesses and recently split itself into a healthcare-facilities leasing REIT, Sabra Healthcare REIT (Nasdaq:SBRA), while keeping its long-term care operations with the parent company, Sun Healthcare.

Other Providers
Long-term care is a fairly strong field, with several solid providers. Kindred Healthcare (NYSE:KND) is another important player. Kindred was mentioned by John Dorfman of Bloomberg as the kind of investment Benjamin Graham might have liked, which of course means value. The stock sells for 0.8-times book value and 0.14-times revenue. The company recently expanded, as it acquired a home health operations company in Ohio. Its earnings for this year at the three-quarter mark were running well ahead of last year's. Kindred stock traded at about 12.5-times earnings toward the end of the year.

Some with Warts
Skilled Healthcare Group
(NYSE:SKH) had positive third quarter earnings if you exclude a settlement of litigation charge. Skilled Healthcare has had spottier earnings than some of the other skilled nursing facility operators, though the stock price had recovered near year's end. Brookdale Senior Living (NYSE:BKD) stock was briefly halted in trading in November, on the other hand, as a large investment group sold off a chunk of shares. The company is in negative earnings territory for the year; however, it cited non-cash expenditures and maintained that a better picture is its positive cash from facility operations and a strengthened balance sheet.

Industry Cautions
All players are not the same; some of the long-term care stocks, such as National Healthcare, Sun Healthcare and Kindred, look particularly strong. There are industry risks, though, such as litigation, government regulations and reimbursement policies. Also, still a major concern is how healthcare reform will impact these providers as that unfolds.

Still Some Strong Stocks
That said, long-term care is a growth industry. Although the growth may be steady and not spectacular, the strong performers in the industry still have solid years. Focus on the more successful companies so as to offset some of the risk. (Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth. To learn more, see Great Company Or Growing Industry?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Dividend Investors Rejoice: Falling Markets Mean Rising Yields
    Investing

    Dividend Investors Rejoice: Falling Markets Mean Rising Yields

  2. Dividend Investors Rejoice: Falling Markets Means Rising Yields
    Investing

    Dividend Investors Rejoice: Falling Markets Means Rising Yields

  3. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  4. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  5. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

Trading Center