Make Money in Growing Health Care Equipment Stocks the Easy Way

Before you go, we thought you'd like these...
Before you go close icon

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to thrive as our global population not only grows but also lives longer and develops more health-care needs, then the SPDR S&P Health Care Equipment ETF (NYS: XHE) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF is too young to have a meaningful track record to assess. And regardless, as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.


With a low turnover rate of 21%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several health care equipment companies had strong performances over the past year. Intuitive Surgical (NAS: ISRG) , a dominant force in robotic surgical machines, surged 68% as more hospitals bought its equipment and then proceeded to generate recurring revenue for the company by buying service contracts and consumable accessories and supplies for the machines. MAKO Surgical (NAS: MAKO) , up 54%, is a similar business, but focuses (so far) on knees and hips, while Intuitive has made much of its money on prostatectomies and hysterectomies. Investors have been drawn to these companies by their huge growth rates and great potential. As more procedures are commonly performed via robotic equipment, their futures will get even brighter. While MAKO isn't yet profitable, Intuitive Surgical is enjoying fat margins.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Edwards Lifesciences (NYS: EW) shed 4% over the past year, despite having popped 14% recently on reporting strong quarterly results. The company warned of weakening sales of its transcatheter valves, though, and it's facing some tough competition. It may not yet be the perfect stock, but it still has a lot going for it, such as solid profit margins and returns on equity.

Boston Scientific (NYS: BSX) , meanwhile, shrank by 16%. Some highly rated participants in our CAPS community are bullish on the company, excited by a new CEO (coming from Johnson & Johnson), insider buying, declining debt, a promising pipeline, and a low valuation. Others are pleased to see an increase in free cash flow that's being used to fuel share buybacks and acquisitions.

The big picture
Demand for health care equipment isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

If you're looking for investments with huge potential, check out our special free report, "Discover the Next Rule-Breaking Multibagger." It profiles one of the companies above.

At the time this article was published LongtimeFool contributorSelena Maranjian,whom you canfollow on Twitter, owns shares of Intuitive Surgical, Johnson & Johnson, and MAKO Surgical, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of MAKO Surgical, Johnson & Johnson, and Intuitive Surgical.Motley Fool newsletter serviceshave recommended buying shares of MAKO Surgical, Johnson & Johnson, and Intuitive Surgical, as well as creating a diagonal call position in Johnson & Johnson. The Motley Fool has adisclosure policy.

We Fools may not all hold the same opinions, but we all believe that
considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners