As Tensions Mount on Wall Street, Orthopedics Offers Stability
BY LAUREN UZDIENSKI, SEPTEMBER 15, 2008
A handful of big headlines rocked the financial sector this weekend, sending the S&P 500 down 3% at midday and compounding months of write-offs, bailouts and mergers that created a cloud of decline within the banking industry.
To recap, Lehman Brothers Holdings Inc. filed for bankruptcy (the Chapter 11 filing excludes the broker-dealer subsidiaries or other subsidiaries of LBHI). The filing follows news that the U.S. government would not bail the firm out and Lehman could not find a buyer. Merrill Lynch agreed to be acquired by Bank of America in an all-stock deal that valued Merrill at $29 a share, or $50 billion. At times during the past year, Merrill traded at twice that price. AIG is struggling to raise capital and is facing a possible downgrade by credit-rating firms.
However, within orthopedics, these latest reverberations from the credit crisis may be limited. As we've said before, healthcare is a defensive sector; counter-cyclical rather than cyclical, and a safer choice for investors in times of recession or market turmoil. This has been born out in recent stock performance. Since January 1, the S&P has declined 14%, compared to 5% for the musculoskeletal sector.
Orthopedics' stability is even more pronounced among the large-cap ortho stocks, which we've defined as companies with market caps greater than $500 million (Zimmer, Stryker, NuVasive, etc.). They're down only 2% this year.
Update: As of market close Wednesday, the orthopedic and dental stocks were down 4% since Friday. This compares to an 8% decline for the S&P 500, a 7% decline for the NASDAQ and a 5% decline for the healthcare sector overall.
