Three Health-Care Stocks to Own for the Long Haul

I've commented recently on individual stocks and will offer up another threesome today.

Each has been owned by me for many years, and my intention is to retain owership in each of them for many more years.

They are solid companies in a great industry (America is aging so we'll need lots of pills and such) who provide steady earnings and healthy dividends. So when I came across a recent article recommending owning shares of stock in these three blue chip companies, it made sense to share it with you.

3 health-care stocks to hold forever has the details:

"There is a lot of focus right now on the year behind us and, of course, the year ahead, with a lot of predictions about what will happen next. . . .

But one thing is universally accepted as truth — that baby boomers are getting older and in need of more care, and that the health-care sector has nowhere to go but up ... not just through 2013, but through 2023 and beyond.

Health-care stocks like Pfizer, Merck and Johnson & Johnson could be your best bets right now, both for the New Year and for the years ahead.

Here are some simple facts about the baby boom and the health-care sector generally, in case you don't already know the score.

• The number of Americans older than 65 in 2030 will be double what we had in 2000, growing from 35 million to 72 million. By 2030, Americans over 65 will represent roughly 20% of the entire U.S. population.
• In 2009, the health-care spending rate in the U.S. grew at its slowest rate in 50 years ... but it still grew.
• From calendar year 2010 to 2011, employment in the health-care industry increased by 265,000 jobs , or 34.3%.

So patients are living longer and needing more expensive care, providing more money and more jobs to the sector. Those are trends that investors can believe in — and take to the bank. . . .

But if you want a focused play on an individual stock for the long term in health care, then PFE, MRK and JNJ are the best. Here's why I like them as a group:

• Reach: All are huge multinational operations that are entrenched in their space, with about $500 billion in total market capitalization among the trio and about $170 billion in combined annual revenue.
• Research and cash : All continue to invest heavily in research of new drugs and products, but all also have big war chests — above $18 billion each — to buy out smaller development-stage companies with promise.
• Increasing access to care : The demographics are clear, but also important is the recent push under the Affordable Care Act to extend access to many Americans. Say what you want about "Obamacare" and some of the companies like insurers that may lose out, but medical-device companies or prescription-drug companies stand to benefit as they see more customers with insurance.

And specific to the three companies, here are a few factoids worth noting that set them apart from other health-care stocks.

• Merck : Merck bought Schering-Plough in 2009 for $41 billion and followed that up with $7 billion for Millipore in 2010 — two big-time acquisitions that have been slowly worked into operations. The immediate results have been obvious in the cost-cutting department, most notably with the slashing of 13,000 jobs recently , but the bigger reason for the buyouts here was the research. It may take time for some of the treatments to get to market, but you can be sure that Merck isn't just benefitting from getting leaner. Case in point — its Alzheimer's treatment moving toward approval. 
• Johnson & Johnson: Unlike Merck and Pfizer, some of the biggest blockbuster brands that J&J has are actually over-the-counter products — Band-Aids, Tylenol and the like. This consumer focus provides a backbone of stability for the company. And long term, while there have been concerns recently about quality after some recalls and slip-ups, J&J is under the leadership of a new CEO , and the worst of the write-downs related to botched vaccines is behind the company. This stock was never dead, but it did underperform ... and now there are signs of a turnaround in the works.
• Pfizer: Pfizer, like Merck, made a mega-merger a few years ago with its $68 billion deal for Wyeth. It also has big drugs in the pipeline, including an arthritis drug that may be worth $2 billion a year. And looking forward, it could spin off its Zoetis animal-health unit in early 2013 via an IPO to unlock some cash and help focus on its core business. The company is well positioned for growth that will help it capitalize on the broader tailwinds lifting the sector.

One final note: . . . it's incredibly difficult to assess things many years, let alone many decades down the road. I certainly don't advocate buying these stocks and never examining them ever again.

But I remain convinced that the demographic push of aging boomers coupled with recent consolidation in Big Pharma and outsized dividends presents a great long-term opportunity ... even if the investments will require constant checkups."

Summing Up

These are all great world class companies and each competes effectively in a solid industry. They also pay nice dividends and will continue to do so over time.

Merck has a current dividend yield of 3.99%, Johnson & Johnson yields 3.38% and Pfizer yields 3.59%.

These stocks certainly aren't bonds --- they are better than bonds.

They are safe and strong equities, all of which pay dividends whose yields are higher than the interest paid on high quality bonds today.

And unlike bonds, over time their shares should show both consistent growth in  cash dividends and share price appreciation as well. A double whammy of the good kind.

To quote investing guru and my all around hero running back from the University of Alabama Forrest Gump, "And that's all I have to say about that."

Thanks. Bob.