A Cure for What Ails Us

 | Apr 19, 2012 | 4:30 PM EDT
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As part of a series of columns I wrote in October concerning the effect of a flat yield curve on the insurance sector, I mentioned the positive effect that it could have on the home and preventive health care industry.

The four stocks listed in that column were Lincare Holdings (LNCR), Chemed Corp. (CHE), Amedisys (AMED) and Life Time Fitness (LTM). The first three are in the home health care space, and Life Time is in the preventive care sector.

Since October, Lincare is up 14%, Chemed has added 19%, Amedisys has gained 1.3% and Life Time has risen 12%. Lincare and Chemed have paid dividends of 3.25 and 1%, respectively, while Amedisys and Life Time have paid none. Amedisys is losing money, but the other four are in the black. Life Time shares are off by about 10% from Wednesday's high just below $50 after underperforming analyst expectations for the first quarter and lowering guidance for the rest of the year.

I still like Lincare, Chemed and Life Time because I believe they will benefit from a growing need among consumers to reduce their personal health care costs and avoid medical treatment as the cost of corrective health measures rises faster than income and inflation.

Although rising health care costs are clearly an impediment to U.S. economic viability, the consensus still seems to be that this process will somehow correct itself and there will always be universal access to corrective procedures. At some point, this belief must change. For many, that moment will come when they are confronted with a medical condition requiring treatment that they have no insurance for or the financial capacity to cover themselves.

Earlier this week, Warren Buffett announced that he has prostate cancer. Because of the aging demographic profile of U.S. Baby Boomers, this probably won't be the last time we'll hear reports of a high-profile individual contracting prostate cancer or some other serious ailment. But the high-profile nature of his disclosure, along with continued concerns about health care costs and access to medical care in the U.S., could motivate more people to take a more active role in preventive care and maintenance.

If some collective awareness does set in among the population, more people will be joining gyms. Life Time Fitness provides a direct route for investors to capitalize on that potential. Though Lincare and Chemed won't benefit from that process, they can benefit from an aging demographic and the rising costs of traditional corrective medical care associated with aging.

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