Healthcare stocks perform better than expected

With healthcare facing some of its biggest financial challenges in years, particularly a growth in bad debt and slides in federal reimbursement, you wouldn't think that industry stocks would be doing too well. As usual, however, the market has followed its own logic, bringing several healthcare stocks to high points and pushing up the overall value Standard & Poor's healthcare stocks average by 4.4 percent (compared with a 7.9 percent drop in the overall index). Meanwhile, mutual funds focused on healthcare are up 6.84 percent over the past three months, according to Morningstar, the only category of stock funds in positive numbers during this period.

Analysts say that rising healthcare stock performance is driven more by biotechs and pharmas than provider companies. Their strong performance is partly due to improved performance by the stocks themselves, but also due to investors running away from finance and energy as well. Healthcare stocks have also been pushed up by foreign investors with strong currencies, who have been on the prowl to take over U.S. companies with below-expected valuations.

Big gainers among the S&P 500 include generic drug-maker Barr, Amgen, Varian Medical Systems and King Pharmaceuticals. On the other hand, it's not all good news in this sector, as several managed care companies have lost value, including UnitedHealth Group and Aetna. (Aetna has lost value despite strong improvements in its fundamentals, underscoring once again that you just can't predict the Street.) And as readers know, hospital companies like Tenet and HMA aren't happy campers of late either, though Tenet has made some progress in stabilizing itself.

To learn more about this trend:
- read this San Francisco Chronicle piece