Quite a change from "I want my MTV," but an aging population will put more strain and more emphasis on health care. Soaring health-care costs have driven companies and individuals to managed-care facilities, not just to save a buck but for comprehensive care. Hospital management firms have reported strong earnings gains, reflecting growth in outpatient services, market share gains, acquisitions, expense reductions and lower labor cost inflation. Hospital management companies' valuations are below that of the Standard & Poor 500, making these stocks a good value for investors.
Continuing health-care industry consolidation will benefit hospital shareholders and should help cure investors of their concern over the negative impact of managed-care restraints and Medicaid reimbursement cuts. In the wake of last month's election, these stocks could have to contend with political battles over Medicaid and Medicare spending. This could create weakness and a buying opportunity in the shares of even the best companies. All in all, the prognosis for this sector is good.