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Health care stocks are outperforming; consider these picks from analyst Les Funtleyder

Aaron Pressman
Breakout

You may not like Obamacare or the health care industry overall but if you're an investor, you probably want to check out the health care sector. It's been outperforming the S&P 500 so far this year, last year and the past two years.

Related: GM down on latest report; Panera rising on an upgrade; Novartis pops on positive drug news

Year-to-date the S&P 500 Health Care Index (XLV) is up 5.5% vs. 2.2% for the S&P 500 (^GSPC) and for the past two years the gap is 55% vs. 32%.

"Health care is one of the few areas of the economy that has been growing, and in a low interest rate environment investors are flocking to growth," says said Les Funtleyder, consulting partner at Bluecloud Healthcare.

He's hot on companies that "can control costs and improve quality through innovation," not companies whose stock price is driven by economic factors or policy changes like Obamacare. "The future of health care," says Funtleyder, "is keeping people healthier longer."

Related: 3 things to watch as Obamacare deadline passes

Fundleyder shared some of this health care stock picks with Breakout:

  • Opko Health (OPK). The company just announced its 4Kscore (TM) Test which looks at specific biomarkers to determine if a patient has a high risk or high-grade prostate cancer. "It has the possibility of reducing unnecessary biopsies. Clearly that's a cost controller and quality improver," says Fundleyer, who adds that "80% of prostate biopsies may be unnecessary."
  • Teva (TEVA) and Actavis (ACT), generic drug makers. "If you switch from a branded drug to generic you're saving yourself money and the system money," says Funtleyder.
  • UnitedHealth Group (UNH).  Funtleyder calls the insurer a "cost controller" whose "goal is to properly allocate resources." He says the company has been "quite successful" lowering costs and improving quality.
  • Merck (MRK). Funtleyder sees Merck as an innovative drug maker, which should benefit from a new cancer drug, MK-3475, that will be combination therapy with other immune system inhibitor drugs developed by Pfizer (PFE) , Amgen (AMGN) and Incyte (INCY). Anytime "you can take a drug and stay out of the hospital that's obviously a good trade," says Funtleyder.
  • Intuitive Surgical (ISRG). This robotics surgery company can improve outcomes, reduce hospital stays and speed up patients' recovery, says Funtleyder.
  • Biogen (BIIB) and Regeneron (REGN). Funtleyder warns that biotech is  "a very idiosyncratic sector. Some stocks go up 100%, some go down 90%," but he says companies with new products like Biogen and Regeneron "tend to stand out better than those that don't have products on the market."

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