Date: 2/22/2009
By RICARDO ALONSO-ZALDIVAR
Associated Press Writer
WASHINGTON (AP) — Now for the hard part.
Even if the national credit card is maxed out and partisanship remains the rule for Washington’s political tribes, President Barack Obama and Congress are plunging ahead with a health care overhaul.
In the week ahead, Obama will start the dialogue on how to increase coverage, restrain costs and improve quality.
Whether a bill can get through Congress and to Obama this year is uncertain. For half a century, the track record on health care has been one of missed opportunities, spectacular failures and hard-won incremental gains.
Obama plans to stress the need for major changes in his address to Congress on Tuesday, administration officials say. He quickly will follow up with a budget that includes a commitment to expand coverage for the uninsured. A White House summit on health care is being planned in coming weeks.
“They don’t intend to blink. They intend to plow ahead,” said health economist Len Nichols of the nonpartisan New America Foundation. “Health reform is seen as essential to balancing the federal budget and economic recovery in the long run.”
People in the U.S. spend $2.4 trillion a year on health care, or about $7,900 per person. That’s more than twice as much per capita as in other advanced countries. But few would claim those dollars are buying good value. The costs are a staggering burden for taxpayers, employers and families, and the recession is leaving more people without insurance.
Yet even a self-described optimist such as Sen. Mike Enzi, R-Wyo., says he has doubts about prospects for overhauling health care. “It needs to be done up front and quickly,” said Enzi, the senior Republican on the Senate Health, Education, Labor and Pensions Committee. “I’m not so sure that we haven’t already lost that, with so many other things coming in and weighing us down.”
In the 1990s, President Bill Clinton took the better part of a year to deliver a 1,300-page health care bill to Congress and later waved his veto pen at lawmakers who might have given him half a loaf. He got nothing. Obama has shown a tendency to be more pragmatic.
Administration and congressional officials say Obama will lay out a vision and see if Congress can make the details work. The Senate has gotten an early start and is shaping up as the proving ground for legislation.
“The Obama administration has said they are going to give the Senate a very wide berth,” said Sen. Ron Wyden, D-Ore., who for years has tried to get Democrats and Republicans working together. “There are areas in which there is going to be spirited debate. But there are four or five major areas where there’s a lot of common ground.”
Polls show most people support coverage for all and believe government should help guarantee it. But what looks like consensus starts to break down once thorny details such as costs and the government’s influence on the doctor-patient relationship come into the picture.
Administration officials say Obama has made a down payment by expanding coverage for children of low-income working families and by providing subsidies to help people who lose their jobs keep health benefits.
As he moves forward, Obama will follow the plan laid out in his campaign.
It calls for government, employers, families and individuals to keep sharing financial responsibility for health care. The approach would overhaul the health insurance market, particularly for self-employed people and small businesses. It would set up a national insurance purchasing “exchange” through which people would be guaranteed access to private health insurance or the choice of a new public plan.
Obama sees coverage for all as a goal to be reached in steps. His plan would not require every individual to purchase insurance. The estimated cost is about $90 billion a year, to start with.
The plan might sound simple in a brief summary, but it’s not. Potential dealbreakers lurk at every turn.
Many liberals can’t get excited about doing battle for just a promise — not an immediate guarantee — of coverage for all.
Conservatives and insurance companies fear that a public plan offered to workers and their families could become the gateway for Canada-style government health care for all.
Employers, hospitals, doctors, and drug companies worry that the government’s already pervasive influence in health care will become stifling.
The initial work has fallen to the Senate, where Democratic Sens. Max Baucus of Montana and Edward Kennedy of Massachusetts want to present a bill by the summer.
Baucus is chairman of the Senate Finance Committee, which oversees Medicare and taxes. Kennedy, who is under treatment for brain cancer, leads the Senate health committee. He has pursued the goal of coverage for all his entire career and doesn’t want this opportunity to slip away.
Baucus has already outlined a plan that differs in some key details from Obama’s. For example, it contemplates taxing some health insurance benefits to raise money for expanded coverage. That’s an idea Obama has rejected but one that certain Republicans favor.
It takes 60 votes to get a bill through the Senate, and Democrats don’t have them.
In the House, the effort seems to be moving more slowly. Senior aides from leadership offices and committees are talking. Rep. Henry Waxman, D-Calif., chairman of the House Energy and Commerce Committee, is expected to take a leading role.
Some experts believe the issue is too complicated to try to accomplish in one year and one bill.
Watching and waiting are people such as Robyn Perry, 56, of Lake Worth, Fla., who recently lost a job with health benefits. She has struggled to find coverage now that she is self-employed. Private plans are either too expensive or won’t take her because she had a ministroke several years ago. A plan sponsored by local government accepted her, but won’t cover her outside her county.
“Something has to be done,” said Perry. “I work. I make decent money. But I still can’t get coverage. I would really like to find a normal health insurance plan that would cover me wherever I get sick, not just in Palm Beach county.”
___
On the Net:
White House: http://www.whitehouse.gov/agenda/health_care/
Copyright 2009 The Associated Press.
HHS candidate best known for health care cuts
Date: 2/10/2009
By KEVIN FREKING and ERIK SCHELZIG
Associated Press Writers
WASHINGTON (AP) — Few governors know the pitfalls of soaring health costs better than Tennessee Gov. Phil Bredesen, which helps explain why President Barack Obama is reportedly considering the Democrat for health secretary.
In 2005, Bredesen cut 170,000 adults from Tennessee’s Medicaid program, called TennCare. He reduced benefits for thousands more.
Critics describe Bredesen’s actions as the biggest cuts in public health insurance in the nation’s history. They believe he’s the wrong person to lead an effort to expand health insurance coverage, and they’re throwing support behind other candidates, including Kansas Gov. Kathleen Sebelius, widely viewed as near the top of Obama’s list of candidates to run the Health and Human Services Department.
However, some say Bredesen’s stand shows he’s willing to tackle the toughest of problems.
Before the cuts were made, TennCare’s growth rate was making it harder to pay for education, roads and other critical services. Tennessee led the nation in the percentage of its population on Medicaid and the percentage of its budget going to Medicaid. However, on a per-person basis, Tennessee ranked 48th in state and local tax collections.
Dennis Smith, now a senior fellow at the Heritage Foundation, was in charge of Medicaid at the federal level in 2005. He said Bredesen’s actions were “necessary and appropriate” because the program was out of control.
For example, almost every state has some type of system that allows it to approve the amount and types of prescription drugs that beneficiaries get. Tennessee didn’t have such controls. Eligibility rules were also much broader than those of other states, allowing for enrollment of adults who would not have been eligible for Medicaid elsewhere.
The most praise for Bredesen comes from conservatives. Obama has shown a willingness to consider their views in his appointments so far, while many of those on the left of the issue say Bredesen is the wrong choice.
Bredesen emphasized in an interview Tuesday that he hasn’t applied for the HHS job or campaigned for it. But he has launched a counterattack against health care advocates for what he calls a distortion of the events that led to the TennCare cuts in 2005.
“Your name comes out and the next thing you know, people are dumping cans of garbage on you,” he said. “So I’m interested in, first of all, setting the record straight.”
Bredesen said the move to cut the number of TennCare enrollees came after advocates “absolutely pushed me to the brink” by blocking other proposals to rein in the costs of the program that was expected to grow by $680 million in just one year.
“Their mantra was, you can do anything you want, but you can’t reduce any benefits and you can’t remove any people,” he said. “They fought me every step of the way on ideological grounds, and basically pushed us to the point where we had no alternative to take some drastic action.”
The governor also downplayed the potential problem of having to work with groups who so vigorously opposed him. More important players will include pharmaceutical companies, hospital, doctors and medical equipment manufacturers, he said.
“What’s going to have to happen is not putting together a coalition of liberal advocacy groups for health care, but a coalition of real people who are sitting here on one-sixth of the U.S. economy and try to find some common ground,” he said.
In some respects, Bredesen sounds like former HHS Secretary Mike Leavitt when describing his philosophy for reforming health care.
“I certainly believe there’s an underlying right and the federal government ought to be financing a basic level of health care for everybody,” Bredesen said.
Bredesen’s emphasis is on the word basic. Leavitt repeatedly stressed the same emphasis. He listed as his top priority that “every American has access to basic health insurance at an affordable price.”
Bredesen met with Obama for the first time in his Washington office shortly after Obama announced he would seek the Democratic nomination for president in 2007.
Bredesen in 1980 founded a health maintenance organization called HealthAmerica Corp., which became the country’s second-largest HMO before he sold it in 1986 for about $400 million.
___
Associated Press writer Erik Schelzig reported from Nashville, Tenn.
Copyright 2009 The Associated Press.
By KEVIN FREKING and ERIK SCHELZIG
Associated Press Writers
WASHINGTON (AP) — Few governors know the pitfalls of soaring health costs better than Tennessee Gov. Phil Bredesen, which helps explain why President Barack Obama is reportedly considering the Democrat for health secretary.
In 2005, Bredesen cut 170,000 adults from Tennessee’s Medicaid program, called TennCare. He reduced benefits for thousands more.
Critics describe Bredesen’s actions as the biggest cuts in public health insurance in the nation’s history. They believe he’s the wrong person to lead an effort to expand health insurance coverage, and they’re throwing support behind other candidates, including Kansas Gov. Kathleen Sebelius, widely viewed as near the top of Obama’s list of candidates to run the Health and Human Services Department.
However, some say Bredesen’s stand shows he’s willing to tackle the toughest of problems.
Before the cuts were made, TennCare’s growth rate was making it harder to pay for education, roads and other critical services. Tennessee led the nation in the percentage of its population on Medicaid and the percentage of its budget going to Medicaid. However, on a per-person basis, Tennessee ranked 48th in state and local tax collections.
Dennis Smith, now a senior fellow at the Heritage Foundation, was in charge of Medicaid at the federal level in 2005. He said Bredesen’s actions were “necessary and appropriate” because the program was out of control.
For example, almost every state has some type of system that allows it to approve the amount and types of prescription drugs that beneficiaries get. Tennessee didn’t have such controls. Eligibility rules were also much broader than those of other states, allowing for enrollment of adults who would not have been eligible for Medicaid elsewhere.
The most praise for Bredesen comes from conservatives. Obama has shown a willingness to consider their views in his appointments so far, while many of those on the left of the issue say Bredesen is the wrong choice.
Bredesen emphasized in an interview Tuesday that he hasn’t applied for the HHS job or campaigned for it. But he has launched a counterattack against health care advocates for what he calls a distortion of the events that led to the TennCare cuts in 2005.
“Your name comes out and the next thing you know, people are dumping cans of garbage on you,” he said. “So I’m interested in, first of all, setting the record straight.”
Bredesen said the move to cut the number of TennCare enrollees came after advocates “absolutely pushed me to the brink” by blocking other proposals to rein in the costs of the program that was expected to grow by $680 million in just one year.
“Their mantra was, you can do anything you want, but you can’t reduce any benefits and you can’t remove any people,” he said. “They fought me every step of the way on ideological grounds, and basically pushed us to the point where we had no alternative to take some drastic action.”
The governor also downplayed the potential problem of having to work with groups who so vigorously opposed him. More important players will include pharmaceutical companies, hospital, doctors and medical equipment manufacturers, he said.
“What’s going to have to happen is not putting together a coalition of liberal advocacy groups for health care, but a coalition of real people who are sitting here on one-sixth of the U.S. economy and try to find some common ground,” he said.
In some respects, Bredesen sounds like former HHS Secretary Mike Leavitt when describing his philosophy for reforming health care.
“I certainly believe there’s an underlying right and the federal government ought to be financing a basic level of health care for everybody,” Bredesen said.
Bredesen’s emphasis is on the word basic. Leavitt repeatedly stressed the same emphasis. He listed as his top priority that “every American has access to basic health insurance at an affordable price.”
Bredesen met with Obama for the first time in his Washington office shortly after Obama announced he would seek the Democratic nomination for president in 2007.
Bredesen in 1980 founded a health maintenance organization called HealthAmerica Corp., which became the country’s second-largest HMO before he sold it in 1986 for about $400 million.
___
Associated Press writer Erik Schelzig reported from Nashville, Tenn.
Copyright 2009 The Associated Press.
Waxman topples Dingell for key panel chair
Date: 11/20/2008
By ANDREW TAYLOR
Associated Press Writer
WASHINGTON (AP) _ Rep. Henry Waxman — a liberal ally of Speaker Nancy Pelosi — has wrested the chairmanship of the powerful House Energy and Commerce Committee from veteran Rep. John Dingell when the new Congress convenes in January.
Waxman, a California liberal and avid environmentalist and booster of health care programs, toppled Dingell Thursday on a vote of 137-122 in the Democratic Party caucus, capping a bitter fight within party ranks.
Dingell has been the top Democrat on the panel for 28 years and is an old-school supporter of the auto industry. Waxman has complained that the committee has been too slow to address environmental issues like global warming.
“The next two years are critical,” said Rep. Jan Schakowsky, D-Ill., who spoke on Waxman’s behalf in the closed-door caucus. “It’s not personal. It’s about the American people demanding that we embrace change and work with the president on critical issues of climate change and energy and health care.”
Waxman, 69, is an accomplished legislator. He had chaired the Energy and Commerce health and environment subcommittee for 16 years and won a series of piecemeal expansions of the Medicaid health care program for the poor that added many children to the program. He’s also taken on the tobacco companies.
The Energy and Commerce panel is one of the most important House committees, with sweeping jurisdiction over energy, the environment, consumer protection and health care programs such as Medicaid and the popular State Children’s Health Insurance Program.
Waxman has been the top Democrat on the Oversight and Government Reform Committee for the last 12 years. Since Waxman became chairman of that panel two years ago, it has taken the Bush administration to task over global warming and allegations that it muzzled government scientists. It also has investigated the White House’s political operation, the use of steroids in sports and, most recently, abuses behind the financial collapse.
Dingell, 82, has been the committee’s top Democrat for 28 years and is an important ally of automakers and electric utilities. He’s considered one of the House’s premier legislators, with a lengthy track record on health, consumer issues and the environment, among other things.
Dingell’s defenders said he had done nothing to deserve being dumped, pointing to the panel’s busy workload over the last two years, including successfully enacting an energy bill that raised automobile fuel economy standards to 35 miles per gallon by 2010.
“I think it was highly inappropriate,” said Rep. Rick Boucher, D-Va. “There was no obvious reason for it other than the desire for another person to chair the committee.
Copyright 2008 The Associated Press.
By ANDREW TAYLOR
Associated Press Writer
WASHINGTON (AP) _ Rep. Henry Waxman — a liberal ally of Speaker Nancy Pelosi — has wrested the chairmanship of the powerful House Energy and Commerce Committee from veteran Rep. John Dingell when the new Congress convenes in January.
Waxman, a California liberal and avid environmentalist and booster of health care programs, toppled Dingell Thursday on a vote of 137-122 in the Democratic Party caucus, capping a bitter fight within party ranks.
Dingell has been the top Democrat on the panel for 28 years and is an old-school supporter of the auto industry. Waxman has complained that the committee has been too slow to address environmental issues like global warming.
“The next two years are critical,” said Rep. Jan Schakowsky, D-Ill., who spoke on Waxman’s behalf in the closed-door caucus. “It’s not personal. It’s about the American people demanding that we embrace change and work with the president on critical issues of climate change and energy and health care.”
Waxman, 69, is an accomplished legislator. He had chaired the Energy and Commerce health and environment subcommittee for 16 years and won a series of piecemeal expansions of the Medicaid health care program for the poor that added many children to the program. He’s also taken on the tobacco companies.
The Energy and Commerce panel is one of the most important House committees, with sweeping jurisdiction over energy, the environment, consumer protection and health care programs such as Medicaid and the popular State Children’s Health Insurance Program.
Waxman has been the top Democrat on the Oversight and Government Reform Committee for the last 12 years. Since Waxman became chairman of that panel two years ago, it has taken the Bush administration to task over global warming and allegations that it muzzled government scientists. It also has investigated the White House’s political operation, the use of steroids in sports and, most recently, abuses behind the financial collapse.
Dingell, 82, has been the committee’s top Democrat for 28 years and is an important ally of automakers and electric utilities. He’s considered one of the House’s premier legislators, with a lengthy track record on health, consumer issues and the environment, among other things.
Dingell’s defenders said he had done nothing to deserve being dumped, pointing to the panel’s busy workload over the last two years, including successfully enacting an energy bill that raised automobile fuel economy standards to 35 miles per gallon by 2010.
“I think it was highly inappropriate,” said Rep. Rick Boucher, D-Va. “There was no obvious reason for it other than the desire for another person to chair the committee.
Copyright 2008 The Associated Press.
Health care, defense poised to weather recession
Date: 11/1/2008 11:11 PM
By MATTHEW PERRONE
AP Business Writer
WASHINGTON (AP) _ With the global economy at risk of a deep recession, many battered areas of the U.S. economy stand to suffer more damage in coming months. Other industries, though, seem poised to withstand even a severe downturn.
The health care sector should hold up especially well even in a recession, along with defense and a few other industries. Still, analysts say a unique collision of economic and political challenges means many businesses might not be as well-insulated as they were in past recessions. Here’s a look at major industries that, if not exactly recession-proof, seem best able to endure the downturn:
—Health care
With an aging population and the largest health care spending in the world, the U.S. medical sector could fare perhaps best of all. During economic downturns, sales of prescription drugs and medical devices tend to hold up better than nonessential goods, noted David Wyss, chief economist of Standard and Poor’s.
“Generally, you’re looking for things that are necessities, not luxuries,” Wyss said. “People get sick and need medical care regardless of the state of the economy.”
But recent earnings show that drug makers are not immune from slumping sales that have plagued their peers in the retail and auto industries. Pfizer said last month that U.S. sales of its best-selling product, the cholesterol drug Lipitor, fell 13 percent in the last quarter as some financially struggling patients stopped filling their prescriptions.
“The typical safe harbors (for investors) have been pharmaceuticals,” said analyst Steve Brozak of WBB Securities. “They’re no longer safe; they’re now the least bad choice.”
Pfizer and Schering-Plough Corp. were able to offset weak revenue in the U.S. with higher sales abroad. But other companies, such as Merck & Co. Inc., have been less successful. Merck said recently it will cut 7,200 jobs after reporting sales declines.
Experts say pharmaceuticals are more vulnerable to economic cycles because employers have shifted more of the financial burden for paying for medications to patients.
“With consumers having more cost-sharing in their benefits, you’re going to see a greater effect on their health care spending right away,” said Paul Ginsburg, president of the nonprofit Center for Studying Health System Change.
The lagging economy and rising unemployment have made it harder for health insurers such as UnitedHealth Group Inc. and Humana Inc. to raise prices to offset higher costs and investment losses.
Health care companies least affected are those that sell inexpensive medical products directly to hospitals, bypassing cash-strapped consumers.
Becton, Dickinson & Co. and Baxter International Inc., for example, reported sharp profit gains for the most recent quarter and boosted their full-year earnings estimates. Becton Dickinson specializes in syringes and surgical tools; Baxter sells drugs to treat blood and immune disorders.
“The products they offer aren’t high-tech things,” said Aaron Vaughn, an analyst with Edward Jones. “They are health care staples that people need.”
A focus on lifesaving medicine is also expected to reward makers of high-priced biotechnology drugs. Genzyme Corp. and Celgene Corp., for example, have built businesses around niche drugs for life-threatening diseases. Health care investment firm Leerink Swann gives both companies an “outperform” rating, along with peers Amgen Inc., Biogen Idec Inc. and Gilead Sciences Inc.
—Defense
With the government spending hundreds of billions of dollars to fight wars in Iraq and Afghanistan, most big defense-related companies should also be able to withstand recessionary pressures.
Military spending has soared about 40 percent during the Bush administration, pushing up the stocks of General Dynamics Corp. and its competitors. The company’s chief executive, Nicholas Chabraja, has pointed to General Dynamic’s backlog of orders — totaling $60.5 billion at the end of the quarter — as a sign of the company’s long-term strength.
Rivals such as Northrop Grumman Corp. and Lockheed Martin Corp. also have contracts that stretch decades into the future, as well as large cash reserves.
Analysts caution, though, that long-term problems loom for the sector. Both presidential candidates have called for reforms on how defense contracts are awarded, and many analysts see the government’s $700 billion bailout plan as a crimp on future spending.
It seems “nearly impossible” that future military budgets “will remain unscathed by the current fiscal reality,” Ronald Epstein, a Merrill Lynch analyst, wrote in a recent note.
JSA Research analyst Paul Nisbet said that even a partial withdrawal from Iraq would hurt ammunition manufacturers such as Alliant Techsystems Inc. and General Dynamics. Democratic candidate Barack Obama has also expressed skepticism about the level of spending on missile defense — a revenue generator for Raytheon Co. and Boeing Co.
By contrast, Nisbet said companies such as Boeing and Goodrich Corp. are better positioned to weather defense cuts because much of their business involves the private aviation market.
—Food and consumer staples
While health insurers and defense contractors are subject to policy changes in Washington, other sectors are more stable. Food companies such as Kraft Foods Inc. and Kellogg Co. tend to perform fairly consistently, even during tough times, which is why their stocks are holding up well, analysts say.
General Mills, maker of Cheerios and Pillsbury products, is one of the best-performing stocks in the S&P; 500. Its strong brands have helped it outperform competitors for years.
As consumers begin eating at home more often, they are boosting sales at chains such as BJ’s Wholesale Club Inc. that can deliver groceries at the lowest price, often at the expense of more high-end companies. Shares of Whole Foods Market Inc. have lost three-quarters of their value this year as the organic-food retailer lowered its outlook and suspended its quarterly dividend indefinitely.
At the same time, chains such as Costco Wholesale Corp. and Kroger Co. have reported rising earnings as shoppers trade down to lower-budget store brands.
—Tobacco and alcohol
Beer and cigarettes do not seem as indispensable as food and medicine, but demand for tobacco and alcohol tends to remain strong in tough economic times.
Last month, Philip Morris International Inc. and Reynolds American Inc. reported results that topped Wall Street expectations. Executives said steady sales show consumers remain loyal to tobacco products even as they cut back on other expenses.
“No business in the world is actually recession-proof, but I am convinced that our business is very recession-resilient,” said Hermann Waldemer, chief financial officer of Philip Morris.
The company, which reported it had $1 billion more in cash than short-term debt in June, said it generates more than $10 billion in operating cash per year.
The beer industry has proved nearly as elastic. Its sales to retailers have risen about half a percent for the year, according to trade publication Beer Marketer’s Insights. Though that’s down from last year’s 1.4 percent growth rate, analysts say the business is still performing relatively well.
“Vices tend to be a good place to seek shelter because people pretty much support their vices — at least the cheaper ones,” said S&P;’s Wynn.
___
AP Business Writers Stephen Manning in Washington, Emily Fredix in Milwaukee and Vinnee Tong in New York contributed to this report.
Copyright 2008 The Associated Press.
By MATTHEW PERRONE
AP Business Writer
WASHINGTON (AP) _ With the global economy at risk of a deep recession, many battered areas of the U.S. economy stand to suffer more damage in coming months. Other industries, though, seem poised to withstand even a severe downturn.
The health care sector should hold up especially well even in a recession, along with defense and a few other industries. Still, analysts say a unique collision of economic and political challenges means many businesses might not be as well-insulated as they were in past recessions. Here’s a look at major industries that, if not exactly recession-proof, seem best able to endure the downturn:
—Health care
With an aging population and the largest health care spending in the world, the U.S. medical sector could fare perhaps best of all. During economic downturns, sales of prescription drugs and medical devices tend to hold up better than nonessential goods, noted David Wyss, chief economist of Standard and Poor’s.
“Generally, you’re looking for things that are necessities, not luxuries,” Wyss said. “People get sick and need medical care regardless of the state of the economy.”
But recent earnings show that drug makers are not immune from slumping sales that have plagued their peers in the retail and auto industries. Pfizer said last month that U.S. sales of its best-selling product, the cholesterol drug Lipitor, fell 13 percent in the last quarter as some financially struggling patients stopped filling their prescriptions.
“The typical safe harbors (for investors) have been pharmaceuticals,” said analyst Steve Brozak of WBB Securities. “They’re no longer safe; they’re now the least bad choice.”
Pfizer and Schering-Plough Corp. were able to offset weak revenue in the U.S. with higher sales abroad. But other companies, such as Merck & Co. Inc., have been less successful. Merck said recently it will cut 7,200 jobs after reporting sales declines.
Experts say pharmaceuticals are more vulnerable to economic cycles because employers have shifted more of the financial burden for paying for medications to patients.
“With consumers having more cost-sharing in their benefits, you’re going to see a greater effect on their health care spending right away,” said Paul Ginsburg, president of the nonprofit Center for Studying Health System Change.
The lagging economy and rising unemployment have made it harder for health insurers such as UnitedHealth Group Inc. and Humana Inc. to raise prices to offset higher costs and investment losses.
Health care companies least affected are those that sell inexpensive medical products directly to hospitals, bypassing cash-strapped consumers.
Becton, Dickinson & Co. and Baxter International Inc., for example, reported sharp profit gains for the most recent quarter and boosted their full-year earnings estimates. Becton Dickinson specializes in syringes and surgical tools; Baxter sells drugs to treat blood and immune disorders.
“The products they offer aren’t high-tech things,” said Aaron Vaughn, an analyst with Edward Jones. “They are health care staples that people need.”
A focus on lifesaving medicine is also expected to reward makers of high-priced biotechnology drugs. Genzyme Corp. and Celgene Corp., for example, have built businesses around niche drugs for life-threatening diseases. Health care investment firm Leerink Swann gives both companies an “outperform” rating, along with peers Amgen Inc., Biogen Idec Inc. and Gilead Sciences Inc.
—Defense
With the government spending hundreds of billions of dollars to fight wars in Iraq and Afghanistan, most big defense-related companies should also be able to withstand recessionary pressures.
Military spending has soared about 40 percent during the Bush administration, pushing up the stocks of General Dynamics Corp. and its competitors. The company’s chief executive, Nicholas Chabraja, has pointed to General Dynamic’s backlog of orders — totaling $60.5 billion at the end of the quarter — as a sign of the company’s long-term strength.
Rivals such as Northrop Grumman Corp. and Lockheed Martin Corp. also have contracts that stretch decades into the future, as well as large cash reserves.
Analysts caution, though, that long-term problems loom for the sector. Both presidential candidates have called for reforms on how defense contracts are awarded, and many analysts see the government’s $700 billion bailout plan as a crimp on future spending.
It seems “nearly impossible” that future military budgets “will remain unscathed by the current fiscal reality,” Ronald Epstein, a Merrill Lynch analyst, wrote in a recent note.
JSA Research analyst Paul Nisbet said that even a partial withdrawal from Iraq would hurt ammunition manufacturers such as Alliant Techsystems Inc. and General Dynamics. Democratic candidate Barack Obama has also expressed skepticism about the level of spending on missile defense — a revenue generator for Raytheon Co. and Boeing Co.
By contrast, Nisbet said companies such as Boeing and Goodrich Corp. are better positioned to weather defense cuts because much of their business involves the private aviation market.
—Food and consumer staples
While health insurers and defense contractors are subject to policy changes in Washington, other sectors are more stable. Food companies such as Kraft Foods Inc. and Kellogg Co. tend to perform fairly consistently, even during tough times, which is why their stocks are holding up well, analysts say.
General Mills, maker of Cheerios and Pillsbury products, is one of the best-performing stocks in the S&P; 500. Its strong brands have helped it outperform competitors for years.
As consumers begin eating at home more often, they are boosting sales at chains such as BJ’s Wholesale Club Inc. that can deliver groceries at the lowest price, often at the expense of more high-end companies. Shares of Whole Foods Market Inc. have lost three-quarters of their value this year as the organic-food retailer lowered its outlook and suspended its quarterly dividend indefinitely.
At the same time, chains such as Costco Wholesale Corp. and Kroger Co. have reported rising earnings as shoppers trade down to lower-budget store brands.
—Tobacco and alcohol
Beer and cigarettes do not seem as indispensable as food and medicine, but demand for tobacco and alcohol tends to remain strong in tough economic times.
Last month, Philip Morris International Inc. and Reynolds American Inc. reported results that topped Wall Street expectations. Executives said steady sales show consumers remain loyal to tobacco products even as they cut back on other expenses.
“No business in the world is actually recession-proof, but I am convinced that our business is very recession-resilient,” said Hermann Waldemer, chief financial officer of Philip Morris.
The company, which reported it had $1 billion more in cash than short-term debt in June, said it generates more than $10 billion in operating cash per year.
The beer industry has proved nearly as elastic. Its sales to retailers have risen about half a percent for the year, according to trade publication Beer Marketer’s Insights. Though that’s down from last year’s 1.4 percent growth rate, analysts say the business is still performing relatively well.
“Vices tend to be a good place to seek shelter because people pretty much support their vices — at least the cheaper ones,” said S&P;’s Wynn.
___
AP Business Writers Stephen Manning in Washington, Emily Fredix in Milwaukee and Vinnee Tong in New York contributed to this report.
Copyright 2008 The Associated Press.