Thanks to the recent stock market crash, we have the opportunity to pick up seriously cheap shares that were flying high until mid-September. In some cases, this is a chance to hop into a time machine and buy these stocks before they became household names. Until recently, these stocks were the darlings of Wall Street. And when the market stabilizes, these stocks could quickly return to favor…

There are few defensive plays like health care – after all, people don’t stop getting sick, and health benefits aren’t something that cost-conscious employers can cut without enduring the wrath of angry employees. But despite health care’s promise for weary investors, the sector hasn’t been immune from the losses seen across the board in the last year.

As a whole, the health care sector has fallen almost 30% since the beginning of 2008. Health insurers have had it worse – these names dropped 40% in the last quarter alone.

If you’re wondering why one of the most regularly profitable sectors in the market has taken such a beating, you’re not alone. Billionaire Carl Icahn is among the many investment pros that have seen their health care losses mount this year. So are Warren Buffett and George Soros.

Explains BusinessWeek’s Ben Steverman:

“On a basic level, investors are worried that Democrat-led health care reform in Washington is going to shake up the health care sector and hurt profits. But it’s actually more complicated than that. The U.S. health care system is astonishingly complex and few people know exactly what President-elect Barack Obama may propose nor what Congress would approve. And few can predict how that legislation (if it passes at all) would impact particular subsectors, industries and individual companies.”

That doesn’t mean that moves in Washington won’t impact the health care sector – they will, though not necessarily in a bad way. Analysts recognize that whatever plans are put into place will most likely involve the private sector. Government changes could actually be good for scores of health care companies, especially health insurers.

Buying into the Health Care Comeback

I also told you last week that I’d give you the name of one of my favorite players in health care IT, a company benefiting as medical providers finally realize they can save billions in the long run with efficient software systems…

This company provides the software to streamline simple tasks – like writing prescriptions and ordering supplies – to 20% of U.S. doctors and 75% of the country’s large hospitals. Its IT infrastructure is connected to 90% of all retail pharmacies and more than 1,800 insurance companies. Its software gets 3.7 million log-ons per month. And it’s expanding overseas, with customers in Canada, UK, France, the Netherlands, Australia, New Zealand, Puerto Rico, and Israel. ———- Advertisement —————–
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Health care information technology is a $25 billion growth industry, and McKesson Corporation (MCK) is its 800-pound gorilla.

McKesson provides hardware, software, and consulting focused on improving the quality of care while reducing costs for its hospital, pharmacy, physician, and insurance customers. Over the years, McKesson has used a combination of large R&D investments and shrewd acquisitions to cement its position as the top player in the health care IT industry.

McKesson is not only the largest health care IT company but also one of the most loved by its customers. The leading independent health care IT research firm, KLAS, ranked nine of McKesson’s solutions either as the best or as a category leader in its 2006 report.

McKesson’s health care IT segment is growing around 20% per year. And is one of its most profitable, as well. Despite bringing in only 1.9% of the company’s $88 billion in revenue last year, the IT segment is providing 9.5% of the company’s total operating income.

I like to call McKesson the “hub of American health care.” It’s the biggest player in the health care IT industry, but its main business is drug distribution – shuffling drugs from manufacturer to consumer. Every night, McKesson distributes more than 1.5 million drugs and medical products to more than 75,000 different sites, everywhere from Wal-Mart to the Department of Veterans Affairs. In the process, it rings up nearly $2 billion in sales per week.

Today, McKesson trades around $53 per share, which I think is a great price. The company also pays a modest, 0.5% dividend.

But here’s the best part about owning this health care giant: McKesson has consistently positioned itself as the leader in every new and lucrative medical business… the latest of which is health care IT. Without McKesson, the health care system as we know it would collapse. So this is this is a stock you’ll never have to sell.

Good investing,

Rob Fannon

P.S. McKesson is a great company to own for a broad, long-term bet on health care IT, but I recently found a fantastic “pure play” on the industry…

This small, niche player has plenty of room for continued growth and a limited number of competitors, so it’s a safe bet. It pays out a 7% annual dividend. And I think investors today could make at least a 50% return in about 18 months. Click here for the full story.