Israel ETF (EIS): An Unlikely Winner In Health Care Reform

by on March 25, 2010 | ETFs Mentioned:

With the passage of the sweeping health care reform late Sunday night, many investors are scrambling to determine which sectors are likely to benefit from the new legislation. Although the timing and impact of changes remains to be seen, generic pharmaceutical firms will likely emerge as one of the big winners. Many big name drugs are going off patent very soon and will be open to the generic market. Popular drugs Cozzar and Flomax will lose their patents this year, and Lipitor, the best selling drug in the country, will lose its patent in 2011. Plavix will follow soon after. While this is a negative development for Big Pharma, it should be good news for consumers and generic manufacturers, which will be able to quickly gain market share. EIS Has Taken Its MedicineMore importantly, more than 30 million previously-uninsured Americans will now have coverage (and will probably be encouraged to buy generics whenever possible in order to keep costs down). The Motley Fool also makes an interesting point on the subject, noting that “unlike lifesaving medicines, which may be one-time charges, it’s easy for uninsured patients to justify skipping a prescription when the benefits are years away and the drugs have to be taken daily.” Now that the drugs will be covered by insurance, those in need will be less likely to forgo them, further boosting generic producers’ profits. Both of these developments should be good news for generic drug manufacturers who could experience a boom in sales if the overhaul proceeds as planned.

Israel ETF Gets A Boost

Although Israel has a diverse developed economy, the iShares MSCI Israel Capped Investable Market Index Fund (EIS) is highly dependent on a few big names to make up most of its assets. The largest single component in the fund is TEVA Pharmaceuticals, one of the largest generic drug manufacturers in the world (and currently the 10th largest company listed on the NASDAQ by market capitalization). Citibank analysts recently upgraded the price target for the stock to $72 from its current market price of $64.40 due to its recent acquisitions and its promising future in developed markets. The firm stands to be one of the main beneficiaries from the increased customer pool as well as many blockbuster drugs going off patent in the U.S.

TEVA makes up nearly one-fourth of EIS, and its performance following Sunday’s historic vote has given the Israel ETF a boost. TEVA jumped 1.6% on Monday after the historic vote in the U.S. House of Representatives, helping to push EIS up nearly 2% on the week.

EIS

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Disclosure: No positions at time of writing