Barron's has an interview with John Sullivan the director of research and investment strategist at Leerink Swann, a Boston-based investment bank that specializes in health care.

Q: So how should smart investors position themselves to profit in health-care stocks?

A: In 2009, some of the best-performing health-care stocks were small biotech companies. Strong clinical trial data on a number of drug candidates could help extend that rally. We see a great opportunity in big-cap names in 2010, especially select names in Big Pharma. At less than 10 times earnings and with a dividend yield of almost 4%, we like Pfizer (PFE) best. We also like Merck & Co. (MRK). Across all of health care, we can't find any other stocks that are more likely to meet earnings expectations over the next several quarters than Pfizer and Merck. Both companies closed significant acquisitions in late 2009, and have embarked on cost-cutting
initiatives that will help drive reliable and very predictable earnings growth for the next several quarters.

Q: Besides Big Pharma, where else should investors look?

A: Big biotech stocks dramatically underperformed last year. But large players like Gilead Sciences (GILD) and Genzyme (GENZ) could generate revenue growth in the area of 10% and increase their bottom lines at a rate in the teens or better. Genzyme had a tough 2009 due to manufacturing and regulatory problems. They should put those issues behind them in 2010.

Q: What about managed care?

A: Though the stocks rallied significantly in the second half of 2009, they remain attractive. The valuation gap between insurers and the broader health-care sector should close once health-care reform is put to bed. We expect U.S. employment to rise in the first quarter of 2010, which is good news for health insurers that cater to big employers, such as WellPoint (WLP) and Cigna (CI). These two companies are also less exposed to Medicare Advantage health plans -- a prime target of health-care reform.

Q: Cash-strapped hospitals kept a tight hold on supply inventories and capital spending last year. What's ahead for medical-device, hospital-supply and equipment makers?

A: Hospital suppliers remained reasonably strong last year, so we think there is continued opportunity among big names such as Baxter International (BAX) and Covidien (COV). Starting late last year, hospitals have grown more comfortable with their financial situation, so demand for capital equipment has shown signs of improvement. Large medical-device companies, meanwhile, are divided between cardiac and orthopedic companies. The arrival last year of a new CEO at Boston Scientific (BSX) has energized and focused the company and created an attractive opportunity for investors. Demand for orthopedic surgery will recover as the economy improves. A small firm called NuVasive (NUVA) is an interesting play with their differentiated products for spine repair.

Disclosure: The Div Guy owns shares of PFE at the time of this post.