Over the last two years, the healthcare sector has been about one thing: The Affordable Care Act. The landmark legislation promises sweeping change across the sector including the highly debated individual health insurance mandate. To that end, healthcare stocks have seen their share prices languish in the face of the bill's uncertainty. This week, some of that uncertainty could be gone. The U.S. Supreme Court will begin hearing three days of oral arguments on the constitutionality of Obamacare. While it's expected that the bill will pass, that may not matter. For investors, the long-term picture for the healthcare sector is rosy and all of this uncertainty is making for a great buying opportunity.

SEE: Countries With The Highest Healthcare Spending

Ignore the Noise
With much protest and fervor, Obamacare goes to the Supreme Court this week for three days' worth of debate. While the nation's top court won't announce a ruling until late June, the Affordable Care Act has overall been a modest net negative for the earnings of most healthcare related firms. While there is no guarantee that the law will be upheld, many analysts expect the sweeping legislation will pass.

However, the passage of the bill may be a moot point. Long term global demographics are in the sectors favor. In the United States, more than 70 million individuals will be Medicare beneficiaries over the next two decades. That equates to roughly 10,000 baby boomers a day turning 65 years-old, every day for the next 20 years. Similar demographic trends are underway in both developed Europe and Asia. As our population ages, more and better healthcare solutions will be required and demanded. Already, the sector is seeing signs of demand growth. During the second and third quarters of 2011, personal healthcare expenditures have exceeded sequential gross domestic product growth.

In the emerging world, the opposite is true. Faster-growing populations in places like Indonesia will require more healthcare solutions to prevent widespread epidemics. New drugs and therapies will be demanded by the ever-growing middle classes of these nations. These factors are bullish for healthcare stocks.

Speaking of stocks within the sector, healthcare remains one of the more reasonably priced options for investors. Analysts have already included the bills effects into healthcare-related stocks' future earnings. So any negatives from Obamacare have already been priced in. According to Morningstar (Nasdaq:MORN), healthcare is the second cheapest of all major equity sectors, relative to its historical fair values.

SEE: Investing in the Healthcare Sector

Time to Pounce
Given the long-term demographic shift at hand, investors may want to overweight healthcare stocks. The continued uncertainty due to Obamacare has provided investors with a buying opportunity. Perhaps the best way to add the sector is through a broad approach.

The Health Care Select Sector SPDR (ARCA:XLV) is one the largest and most liquid funds in the sector. The ETF holds 54 different healthcare giants including Johnson & Johnson (NYSE:JNJ) and insurer UnitedHealth Group (NYSE:UNH). The fund spreads its $4 billion in assets across a variety of healthcare subsectors with pharmaceuticals accounting for 50% of holdings. Expenses for the fund run a cheap 0.18%. Likewise, the Vanguard Health Care ETF (ARCA:VHT) is another cheap/broad option. Expenses for the VHT cost only 0.19%, but investors gain access to nearly 300 stocks.

Healthcare remains a very technology oriented field, with some of the greatest advances coming from the biotech and medical device sectors. The iShares Nasdaq Biotechnology (Nasdaq:IBB) offers a broad way to bet on the high-tech side of medicine. The fund's 118 different holdings allow investors to gain from biotech's "lotto ticket" nature, while eliminating much of the single stock risk. In addition, the various scientific instrument and supply firms, like Thermo Fisher (NYSE:TMO) and Bio-Rad Laboratories (NYSE:BIO), should see increase demand for their products as drug research gets more intense and expensive.

SEE: Where Can Americans Go for Cheaper Healthcare?

The Bottom Line
The Affordable Care Act is hitting another milestone. This week it finally goes in front of Supreme Court. However, the Justice's ruling may not matter. Healthcare has long-term demographics on its side. For investors, adding the sector still makes sense. The previous broad picks, along with the First Trust Health Care AlphaDEX (ARCA:FXH), make great ways to play the beaten-down sector.

SEE: Additional Healthcare Coverage Needs For An Aging Population

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

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  1. Is dental insurance tax deductible?

    Dental insurance premiums may be tax deductible. To be deductible as a qualifying medical expense, the dental insurance must ... Read Full Answer >>
  2. Does a Flexible Spending Account (FSA) cover massages?

    Flexible Spending Accounts (FSAs) cover massages for certain medical treatments. These treatments must be approved and prescribed ... Read Full Answer >>
  3. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>
  4. Does CareCredit cover prescriptions?

    In the United States, the health care sector is one of the fastest growing and costliest industries. The demand placed on ... Read Full Answer >>
  5. What are catch-up contributions for Health Savings Accounts (HSAs)?

    The U.S. Internal Revenue Service (IRS) allows an eligible individual with a Health Savings Accounts (HSA) who turns 55 or ... Read Full Answer >>
  6. Who can make catch-up contributions to a Health Savings Account (HSA)?

    An eligible individual who is 55 years or older at the end of his tax year can make additional catch-up contributions to ... Read Full Answer >>

You May Also Like

Trading Center