Healthcare Boom A Bubble? 4 Stocks To Buy Anyway

Thanks to Obamacare, investors have been overly upbeat about the dramatic exuberance seen of late in the U.S. healthcare sector. But it’s time we question the rationality of this tremendous upsurge. More specifically, is everything a boom out here or is it just a bubble?

Healthcare stocks have skyrocketed 136% in the last 5 years, the finest performance of any sector in this period. Although the broader market indexes have hit their all-time highs during this period, the pace of increase in healthcare stocks makes the S&P 500’s gain (73%) look like child’s play. What's more impressive is that even in this phase of massive global sell-offs, the sector has not only held its own but also maintained a stable uptrend.

"You really have some powerful long-term tailwinds, including innovation and the aging of the population which can continue to drive the stocks higher," according to Marshall Gordon, senior research analyst at ClearBridge Investments.

While instances of innovations are embodied in Gilead’s (GILD - Analyst Report) blockbuster hepatitis C virus drugs, Harvoni and Sovaldi, which have occupied the market in a controlling way leading to the rise in the stock price to a ‘never-before’ level, we can also find the healthcare stock index behavior absolutely rational when we consider the much talked about reforms that have opened access to healthcare services for many an American.

The “Disputers”

There are some economists belonging to the opposite camp. They believe that the contraction has already started to creep in from late 2014, especially in the field of biotech. Economic analyst and Forbes contributor Jesse Colombo asserts that, “Though everyone is aware of the perpetually rising cost of healthcare, virtually nobody has connected the dots and realized that healthcare has become the ultimate bubble that will put the housing bubble to shame.”

These economists believe that the affordable care act has already driven the stocks to their maximum potential and even beyond, not always supported by sound fundamentals. The pendulum is now gathering momentum to swing in the other direction.

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