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Healthcare Stocks: Feverish

Posted on April 1, 2015

By Wolf Richter

The healthcare merger binge on Monday came in the nick of time. While the overall US economy is struggling to grow at anything faster than the puny pace of 2.3% per year, healthcare spending has been on a tear, rapidly grabbing an ever larger part of the economy. If it hadn’t been for the nearly 8% growth in healthcare spending last year, there might not have been much of any growth.

Revenues of healthcare companies in the S&P 500 grew by 10.8% last year, according to FactSet, by far the fastest-growing sector. In Q1 this year, revenues are expected to grow 9.1%, and for the whole year 6.9%. Earnings for the year are expected to soar nearly 16%.

Healthcare has some advantages over other industries. It’s the only place in the economy where consumers have no clue at the time of purchase what the products and services will cost them or their insurers. Yet these could be big-ticket items, costing more than a car or even a house in some cases. Pricing is more than opaque, and purposefully so. The industry knows how to use fear to motivate consumers to buy. And it’s full of state-protected monopolies and anti-competitive structures dedicated to taking an ever bigger bite out of the economy. It wreaks havoc on federal, state, and municipal budgets. It strains consumers. And a considerable part of that glorious revenue stream is sooner or later funded by taxpayers.

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