Andrew Acker Portfolio Manager, Janus Global Life Sciences

Comments & Outlook

Health care stocks underperformed the broader market for five years until the flight to quality that occurred in 2008. That momentum held until February, when President Obama initiated the push for health care reform. Since then there’s been tremendous uncertainty related to health care reform and how that might play out for different sub-industries. Accordingly, health care stocks have lagged throughout the recent rally.

Health care stocks are likely to remain extremely volatile depending on the outlook in Washington. Ultimately, how reform plays out will determine the direction of health care stocks. Our view is that the uncertainty has created attractive valuations and buying opportunities within the health care industry; any clarity on health care reform should bode well for health care stocks over the next year or so.

Recommended Strategy

We take a global approach, looking for companies across the life sciences spectrum, including stocks in biotechnology, pharmaceuticals, health care services and medical technology. We focus on three different types of opportunities: core growth companies, which we define as companies with dominate franchises and strong free cash flow generation; emerging growth companies, which have new products or a new product cycle that we believe can drive revenue or earnings acceleration; and opportunistic investments, shares issued by companies suffering from what we believe are short-term market misperceptions that should resolve over time.

What to Buy Now

Roche (OTC: RHHBY), a leader in cancer therapies, or Gilead Sciences (NSDQ: GILD), a leader in therapies for HIV infection, are excellent examples of core growth companies. Alexion

Parmaceuticals (NSDQ: ALXN), a biotech company whose products address rare, unmet medical needs is another favorite of ours. Its lead product, SOLIRIS, addresses a rare blood disorder, PNH, and could be applicable to several other orphan diseases.

Intuitive Surgical (NSDQ: ISRG) is an opportunistic investment, a high-quality company that’s developed a robotic surgery system that we believe improves the way surgery is done today. This technology has rapidly gained market share, even in a difficult hospital spending environment.

Elliott Gue Editor, Personal Finance and The Energy Strategist

Comments & Outlook

The Conference Board’s Leading Economic Index (LEI) surged 0.7 percent month over month in July following a 1.3 percent gain in June and a 1 percent gain in May. The LEI has an outstanding track record of pinpointing recessions and recoveries; LEI now suggests the worst post-war recession in the US will be over by the end of the third quarter.

Although the coming economic recovery is unlikely to be as robust as prior cycles, there’s still room for considerable upside in US and global stock markets through year-end.

Recommended Strategy

My favorite sectors to play the coming rally are energy and technology. Demand for crude oil has stabilized in the US and is growing again in China and other developing economies. Meanwhile, depressed oil prices in late 2008 and early 2009 prompted producers to slash their exploration budgets; production will fall even as demand begins to rise.

A recovery of US industrial demand coupled with a slowdown in gas drilling activity should push natural gas prices off multi-year lows by the end of 2009.

Technology has been a market leader all year, holding up better than the broader market during the early-2009 downturn and then rising faster during the ensuing rally. There’s a good fundamental basis for that surge: Nearly 80 percent of technology stocks in the S&P 500 beat second-quarter earnings estimates. And technology has the lowest debt burden of any S&P sector and among the highest exposure to overseas markets.

What to Buy Now

One of my favorite long-term plays on energy markets is oil services giant Weatherford International (NYSE: WFT). The large onshore oilfields that have been the mainstay of global production for decades are now experiencing declining output.

To compensate, producers are turning to more complex fields including deepwater, smaller pockets of oil and unconventional fields with challenging geology. To produce these more complex fields requires advanced technology, provided mainly by oil services companies.

Weatherford’s long-term contract in Mexico’s Chicontepec region helped stabilize earnings during the industry downturn in late 2008. And the company has taken advantage of weakness in its market to expand; Weatherford’s purchase of Teekay Tankers (NYSE: TNK) and BP’s (NYSE: BP) Russian services venture gives it a strong position in that key market.