Recent Posts:

This Particular Stock Bubble Is Bound to Burst in 2015

Nothing lasts forever, and theme-based stock rallies are no exception. Indeed, the entire investment industry is one that relies on a never-ending cycle of booms and busts. The trick is getting out at the peak of the booms, and getting in at the trough of the busts.

With that in mind, the last couple of years have inflated one particular stock bubble thats ripe to pop in 2015. In fact, the contraction may have already begun as calendar 2014 was being closed out. That bubble? Healthcare stocks, and biotech stocks in particular. An Obamacare-driven rally from these names looks like it has more than run its course, and that pendulum is now poised to swing in the other direction for a while.

• InvestorPlaces 10 Best Stocks for 2015

2014 Was a Banner Year for Healthcare Companies

Just for perspective, the iShares Dow Jones US Healthcare ETF (IYH ) gained 24% in 2014. It wasnt actually the top-performer last year.

That honor belongs to the utility sector. Healthcare stocks were the second-best performer in 2014, though, doubling overall markets 12% gain for the same timeframe.

The onset of the Affordable Care Act gets a great deal of the credit for last years heroic run from the healthcare sector. Millions of newly-insured individuals decided they may as well utilize the insurance they were mandated to have. Obamacare wasnt the only wind blowing in the industrys favor, however.

In 2014, the biopharmaceutical industry really started to shrug off the ill effects of falling off the so-called patent cliff with the introduction of a plethora of new revenue-bearing drugs.

As of the most recent look, the Food & Drug Administration approved 41 new molecular entities/novel medicines for 2014. Thats the highest number in over a decade, and leaves 2013s 27 NME approvals in the dust. An inordinate number of those 41 approved drugs were biologics,  a more advanced and more effective category of pharmaceuticals.

The market rewarded that success, too. The iShares NASDAQ Biotechnology Index ETF (IBB ) was up a whopping 35% last year, doing the bulk of the heavy lifting for the entire healthcare sector in 2014.

All told (and assuming analysts targets for Q4 are relatively on target), healthcare companies pumped up income to the tune of nearly 16% in 2014. Thats second-best for all sectors last year. Healthcare stocks are also projected to lead income growth in 2015, with Standard & Poors suggesting an earnings growth outlook of 23% for the industry over the next twelve months.

So with all this drug approval momentum against a backdrop of the fact that Obamacare isnt going away anytime soon, what not to like about healthcare stocks in 2015?

In simplest terms, expectations are too high, and opportunities are shrinking. Those are two ingredients for a dangerous stock bubble.