Filed under: Johnson and Johnson (JNJ)

Just because a company is in the health are field, it doesn’t mean it’s a buy. That’s because investors have figured out that future demand for a product does not translate into unexpectedly high profit for the companies that meet the demand.

Obviously demand for medical products and services is going to rise as 77 million baby boomers age. But that demand does not necessarily translate into making money — either in the product or stock markets. Why not? Because the competition is fierce. Not only are rivals going after each other with aggressive marketing but in many cases the government or pharmacy benefit managers are the buyers. And these buyers cap prices — often at levels that make it difficult for suppliers to make a decent profit.

Furthermore, companies in this industry must invest considerable amounts in R&D to develop new products since they can’t rely on profits from products that lose patent protection due to competition from generics. And the success rates of those R&D efforts seem to be dropping — leaving many competitors with high costs, declining revenues, and uncertain futures.

Continue reading Three health care stocks to avoid: Johnson & Johnson, Medtronic and Patterson

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This entry was posted on Saturday, December 8th, 2007 at 9:43 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.