May 16th, 2013

Healthcare Providers and Suppliers

image

When it comes to stock selection I usually fall back on the following slogan: “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own”.

I believe the stock market is in the early phase of a major secular bull market.  This is when you want to jump on a trend early and stick with your proven winners for the long haul and earn those large percentage gains.  To do this, you want to try to identify industry groups that contain many individual stocks.  Finally, you use charts to identify those stocks that have had large percentage moves in the (long-term) past but have been held back in consolidation zones for a number of years.

There are many stocks that meet these criteria but the few shown below are representative.  Granted, these charts cover eight years but they are similar to how the financial and homebuilder stocks look several years ago before their run.

In short, there seems to be something dramatic building in a wide range of stocks in the healthcare field over the past several years that could lead to a large number of breakouts across levels that could lead to significant price appreciation for some time:

 

  • HMA,HMA - 20130515
  • UNH,UNH - 20130515
  • AMSG,AMSG - 20130515
  • BKD,BKD - 20130515
  • HGR,HGR - 20130515
  • MD,MD - 20130515
  • BRLI,BRLI - 20130515
  • OMI,OMI - 20130515
  • LH,LH - 20130515
  • ESRX,ESRX - 20130515
  • DGXDGX - 20130515

December 11th, 2012

Our Discipline: A Case Study in MED

As I’ve written here often, I believe the best approach for the typical individual investor is to manage their portfolios employing the following three steps: 1) a well-founded, unemotional approach to market timing, 2) the notion of industry group rotation and 3) diversification that spreads risk among a fairly large number of individual stocks (i.e., investing approximately equal amounts among stocks in the portfolio).

Put another way, the portfolio management effort down to answering the following questions: How much money should be put at risk in the stock market at any particular moment and, if new money is to be put to work, which stocks should be added to the portfolio? 

I solved the first question for myself several years ago.  I collected data back to 1963 on the daily S&P 500 Index and, by asking a series of “what-if” questions determined when it would have been better to have invested money in the market making an average return than having it sit idle on the sidelines.  Or, stated in the reverse, when would having money sit on the sidelines been better for long-term returns than had it been invested earning an average market return?  The analysis resulted in my Market Momentum Meter, an unemotional barometer of market sentiment, that allows me to shut my ears to all the media noise and hype about what they claim is “Breaking News” and focus instead on the truth about conditions conducive to momentum-driven markets over the past 50 years.  Following the Meter’s signals over the long run, investors could have avoided market crashes while still taking advantage of the bull market runs.  I can attest to the fact it helped me avoid the worst of the 2007-09 Financial Crisis Crash.

Once the Meter signals that it’s relatively “safe” to put new money to work in the market,  I use a two-step approach for finding the stocks best for carrying that risk.  I scan all stocks to find those that meet one of four different sets of criteria and, once having narrowed down the population of publicly-traded stocks, I look at their charts to find those that might have a good chance of crossing above levels that stymied their past advances (in other words, those that look like they could soon breakout across significant, long-term resistance trendlines). The first stocks to breakout are first in line as investment candidates.  The discipline requires me to sometimes be fairly active and at other times to do nothing but unemotionally watch the Portfolio run with the market or sit idle safely protected in cash.

The debate/negotiations in Washington has brought us again to a crucial market pivot point.  The Meter indicates that when market conditions look as they do today it might have been best for us to have money invested.  I have begun running those scans to begin finding those stocks that look like they’re ready to trigger Buy Points in their charts by crossing above key resistance levels.

While 75% of the stocks currently in the Portfolio show gains and 69% have outperformed the S&P 500 since their purchase, few have delivered the sort of results as has MED since its purchase last March.  I had never heard of Medifast when it dropped through one of the Scans and presented a compelling chart.  When I purchased the stock, I wrote in the Instant Alert to Members that the stock is “a product of yesterday’s Stocks-on-the-Move scan.  It has formed an inverted head-and-shoulders reversal pattern at what I hope will be the bottom of a multi-year descending wedge pattern.”  Since then, the stock has advanced 95%:

As the usual disclaimer says, “Past performance is no guarantee of future performance”.  But, I believe in the discipline and am using it today to find the next batch of stocks some of which, with some patience and luck, will hopefully deliver what turns out to be the outstanding performers over the next nine months or a year.

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May 1st, 2012

Don’t Let the Train Leave Without You

At the beginning of the year, I outlined my process for assembling an Watchlist of stocks that look like suitable candidates for purchase (see “The Challenge of Assembling a Watchlist” of January 18, 2012).  In short, the process involves running four scans that identify stocks meeting certain fundamental performance and technical momentum criteria and then manually looking at the stock’s charts to identify those that: 1) look as though they are about to cross above the apparent upper boundary of a congestion zone (either reversal bottom or consolidation chart patterns) or 2) haven’t moved too far above the previous congestion zone increasing the risk of the stock being susceptible to succumbing to a downdraft in the event of a market correction.

The market has been trapped in a very narrow trading range since mid-February and is again approaching the upper boundary in another attempt at breaking above and continuing to drive higher.  Therefore, it’s time to assemble another watchlist.

This time, using the process described above, I culled a list of 132 stocks that, in my judgement, meet the criteria.  The four scans delivered an additional 346 stocks  but most of those stocks have already had huge runs and are far above their most recent previous congestion zone.  Many of the names on the larger list of momentum stocks contains the names of stocks that are now familiar leaders; 71% have increased 10% or more since the beginning of the year while 35% are up 25% or more.  I was fortunate in having added 26 from the list to my Model Portfolio and show gains on them.

My most recent Watchlist consists of 26 healthcare, 24 tech and 30 resources and manufacturing stocks:

It’s from this list I suspect (it’s probably safer to say “hope”) that the momentum leaders in the market’s next up-leg will come.  That’s not to say that the movers since the beginning of the year won’t lead also in the next leg; I only say that if you are afraid of buying into such high fliers as AAPL and PCLN, then you can probably get some nice percentage moves in some of the new comers without at the same time suffering acrophobia.

Members have access the list and now you can also (click here).  Be prepared for the next leg higher.  Learn the price levels that signify a breakout and trigger a purchase.  Know when a stock may have run to far ahead to catch without risk.  Don’t let the market’s next move leave you standing on the sidelines watching as others make money.  Act now!

January 27th, 2012

VTR and REITs: Awaiting Resolution of “Great Convergence”

As discussed in the previous post, the market is at a crucial juncture, something I have labelled “The Great Convergence”.  The confluence of risk and opportunity is seldom as obvious as it is today.  Many of the risks still hang over our heads (need I mention Europe sovereign debt, U.S. election season, renewed U.S. budget debates, housing market still on its back, another round of debate about healthcare, etc.) yet each, through the prospect of their ultimate resolution, presents impetus offers another reason to be bullish.

The Convergence is evident as the apex of the huge symmetrical triangle that has formed over the past 4-5 years in chart of the S&P 500 Index since 2007.

One sector that safe for waiting for more certainty are the REITs.  With the Fed announcing that they foresee low interest rates through 2014, the yields available in REITs still looks competitively attractive, even though the stocks continue to appreciate without any significant correction.  One stock that seems to fit that description is VTR (Ventas Inc).  With a dividend yield of 3.9%, VTR appears to be a stock in which one can sit and wait until the direction out of the Great Convergence is clear.

Rather than mimicking the chart of the S&P 500, VTR recently broke above a significant 5-quarter resistance trendline.  That may be considered a consolidation cup-and-handle after the long run from the reversal pattern at the bottom of the Financial Crisis Crash.  If it turns out to actually be a consolidation, then the next move could take the stock up to around 100 using the charting rule-of-thumb that a consolidation is at the mid-point of the move (the move after the consolidation should approximately equal the move before):

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December 7th, 2011

New Highs + Dividends; Unbeatable In This Market?

I know it’s frustrating having to sit around waiting for the market to show its hand as to future direction.  But for me, it’s the cautious and prudent thing to do.  I’ve just been disappointed and have lost too much in the past by thinking I can pick the few stocks that are able to hold their own against the forces of a declining market.  But I am beginning to put together a watchlist of stocks with interesting technicals but have decided not acting on them yet.

One place I began my search is to comb through stocks that are in all-time new high territory (because of system limitations, I’m limited to stocks moving to new 5-year highs as a surrogate metric).  A measure of how poorly stocks have performed over the past 18 months is the fact that only 118, or 2.4% of all stocks, meet the criteria. The distribution of these 118 stocks by Industry Group includes:

Stocks in All-time New High Territory by Industry Group 12/07/11

Not knowing how long it will be before the market gained some upward momentum, I decided to zero in first on the stocks paying the largest dividends.  For those itching to hit that “Buy” button, here are a few stocks I came up with you might be interested in:

Top Dividend Payers + All-Time New Highs 12/07/11

Dividends and continuing their ascent into all-time new high territory.  Almost an unbeatable combination?

May 12th, 2011

Sell Rule: Out-of-Favor Industry Groups

A mistake most traders, including myself, often make is focusing too much on what is or, more correctly, what will in the near future be moving higher. In the Weekly Recap Report I send to subscribers, I include both an breakdown by industry group of stocks in the current Portfolio as well as a list of Investors’ Business Daily’s top-ranked Industry groups and Groups moving up in rank the most during the past 3 months.

Our goal is finding tomorrow’s hot stocks. At the same time, however, we should make sure that the stocks we already have in our portfolios continue performing. It’s just as important to see what Industry Groups are falling the most in their rankings as it is those that are rising the fastest.

For example, I’ve been beating the drum for healthcare related Industry Groups for some months and, as of this past weekend, over 20% of the portfolio is now made up by stocks in those groups; most have performed extremely well. I included the following chart in a recent Recap Report of the Medical-Biomed/Biotech ranking showing that these stocks, as a group, have been among the best performers for over a year (click on images to enlarge):

What I hadn’t looked at or acted on was the other end of the spectrum – the industry groups that might have been falling fastest. If I had, I would have seen, for example, was that all the Oil & Gas related Industry Groups had begun losing their top rank positions. I had blinders on but if I had looked at the other end, I would have seen the stocks that were dropping the most in ranking. I would have seen groups like the Oil & Gas-International Exploration and Development:

and the Oil & Gas – Canadian Exploration and Development:

Both of these groups had started turning down from their top rankings in mid-March and were now among the lower half in ranking of the 197 Industry Groups; both were now clearly under the 20-week moving average of their ranking. If I had taken notice and acted as quickly to dispose of these stocks in the Portfolio as I was adding healthcare stocks then I would have preserved a lot of profit.

Last November, I wrote “My Sell Rules Discipline” in which one rule is selling “individual stocks where risks associated with that stock appear to have increased”; the fourth example is “an industry group if it falls out of favor”. I just didn’t follow my own rules. I have long known that Industry Group factors contribute about 30% to a stock’s movement (the market is 50% and factors related exclusively to the individual stock contribute the remaining 20%). What I just now re-learned, a lesson I won’t soon forget, is that we have to look not only for new stocks to add but also to find and quickly act to prune out stocks in Industry Groups out of which money clearly is flowing.

April 1st, 2010

Boomer Impact on Health Care Services and Products

Hope you noticed I was AWOL for a week but it was for a valid, even if mournful, reason. My mother passed away last week after a relatively long and painful battle against the ravages of late-stage osteoporosis. It’s not often that someone writes a eulogy in a stock investment blog but I thought I would because its what she might have appreciated (her final wish was “to be remembered”). And now, through technology and the power of the Internet, she will be.

My mother was a vital 96 when she passed away. But her age wasn’t the most amazing thing about her. Perhaps the second most amazing thing was that for 71 years she put up being married to my father and living in his shadow. He will soon have his 98th birthday.

Perhaps the best description of my mother, one written by my son on his website, a succinct description I dare not compete with, follows:

Lillie (1913-2010)
My grandmother was a really cool and special lady.
She grew up very poor in Hungary.
She outwitted the Nazis to survive WWII.
She found her way to America and loved it here.
She wrote about it all in her memoirs.
She was married for 71 years!
She cooked incredible stuffed cabbage and squeezed her own orange juice.
She played Uno and Rummikub with us.
She always hung my drawings on the refrigerator.
She was the best grandmother you could ever have and I’m gonna miss her.

Now back to the mundane business of stocks.

Spending last week in Sun City, Arizona brought home something I knew intellectually but hadn’t focused sufficiently on: the economic impact of an aging Boomer Generation. You could rightly say, “Duh!” But it’s not until I accompanied my dad to one of his unfortunately all too regular clinic visits for blood tests that it sank in.

With an excellent hospital and extensive health services of every imagined variety, the area is very “grey-centric” and, yet, we still waited 40 minutes for a simple blood test. The waiting room was filled to capacity, getting copies of test results was complicated and the various physicians, services and records were geographically dispersed.

What’s going to happen to all these facilities and services when the patient begins growing exponentially as Boomers move into their senior years? Inevitably the same thing that happened when they moved into elementary school, into high school, into college and then into the real world of marriage, babies of their own and the work force. The answer is that Boomers will put the same squeeze on health care capacity as they have every other system as they passed through various life phases.

O.K., that’s what the health care debate has been all about, I’ll grant you that. But you can look on this as a bricks-and-mortar and “labor” constraint challenge, as well. There just won’t be sufficient capacity in the system to handle the bulge in the same way that there weren’t enough school rooms, houses, cars, etc.

Which leads me to reaffirm my conviction that most stocks in the health care industry, whether in medical technology, hospital operation and ownership, health insurance, financial services, nursing homes, retirement communities, etc. should appreciate substantially over the next 15 years. Many have offered the analogy of a python swallowing a pig to the effect Boomers have had on stocks of companies that benefited as they moved through their various life phases. They are approaching retirement and all these industries and stocks will likewise change and benefit (see “More Health Care Stocks” of March 22).

March 23rd, 2010

More Health Care Stocks

It’s been building for a few months but now that it seems the health care bill has passed and is about to be signed into law, a wide range of health service related stocks look like they’re perking up and are about to make some headway.

We were premature but saw the opportunity in the making for these stocks then but they look prime now. In addition to the three identified in “HMO Stocks: AET, UNH and WLP” on December 10 can now be added hospital, nursing home and outpatient/homecare stocks. Those in the groups that appear to me to have clear, strong, long bases or consolidation patterns include (click on image to enlarge):

  • DVA (Davita)
  • GTIV (Gentiva)
  • LCAV (Lca-Vision)
  • DCAI (Dialysis Corp)
  • BKD (Brookdale)
  • KND (Kindred)
  • SRZ (Sunrise Senior)
  • ENSG (Ensign)
  • THC (Tenet)
  • CYH (Community)
  • UHS (Universal)
  • LPNT (Lifepoint)

I couldn’t include all the charts due to space and time constraints. The above are included only on the merits of their charts; you should, as usual, do your on diligence in evaluating these and other stocks based on both their technical and fundamental merits for your own portfolio and investment style.

December 10th, 2009

HMO Stocks: AET, UNH and WLP

Even the best in sports needs coaching from someone who can give them objective feedback and playing the stock market game as an individual investor is no exception. A long-time reader and someone I’ve been mentoring since the last summer’s start, let’s call him Eric, alerted me to an industry group with charts that have many of the same characteristics as the general market had when we saw the inverted head-and-shoulders in the S&P 500 Index. One knows they’ve done an excellent job of mentoring when the mentee teaches the mentor.

This was recently brought home to me when Eric suggested I take a look at WLP (Wellpoint), a member of IBD’s Medical-Health Maintenance Organization Industry Group. The last time I wrote about medical stocks was on February 4, when I wrote:

“Will market participants see all this resistance overwhelming or will traders large take a move towards and above each one of these obstacles (along with favorably received Government action) be a signal for more money to be moved out of Treasuries and into riskier equities.

While still mostly on the sidelines myself (80% in cash), I have edged out into some equities. I’m always on the lookout for more stocks with good charts that also have met or are close to meeting the additional criteria of have a “golden cross”. Many of these stocks happen to be in the defensive healthcare industry groups like pharma, drugs and biotech.”

Charts included in the post were

  • MTXX (then 18.19 but trashed in June due to having to pull Zycam from the market),
  • SIGA (then 4.02, yesterday 8.66, or 215%),
  • CMN (then 14.68, yesterday 19.45 or 133%) and
  • SXCI (then 20.00, yesterday 52.02, 260%)

Oh, if I had just followed my own advise and stuck with those recommendations. But there may be another opportunity (albeit, with the market’s completely different backdrop … anticipating a correction rather than anticating the recovery) among the 15 HMO stocks. Some have experience significant appreciation since March 5 like CVH (178%), CI (160%) or HNT (108%). But these three (including Eric’s WLP) caught my eye as group members that have a good chance, with what appears as debate on the healthcare approaching some closure, to begin finally to follow the herd:

  • AET (Aetna)
  • UNH (United Health)
  • WLP (Wellpoint)

February 4th, 2009

Healthcare: MTXX, SIGA, CMN and SXCI


Well, at least one day down and the bottom-boundary trendline of the symmetrical triangle held support. A few more days like yesterday and I’ll next be writing about the outlook for breaking above the upper-boundary trendline. That area is really interesting since so much is converging in that ara:

  • the upper boundary of the symmetrical triangle
  • the upper boundary of a steep downward-sloping channel covering the worst of last year’s bear market crash going back to last August
  • the 60-day moving average and
  • not too much higher (around 4%), the 90-day moving average

Will market participants see all this resistance overwhelming or will traders large take a move towards and above each one of these obstacles (along with favorably received Government action) be a signal for more money to be moved out of Treasuries and into riskier equities.

While still mostly on the sidelines myself (80% in cash), I have edged out into some equities, many also in the Model Portfolio. But I’m always on the lookout for more stocks with good charts that also have met or are close to meeting the additional criteria of have a “golden cross”. Many of these stocks happen to be in the defensive healthcare industry groups like pharma, drugs and biotech. Examples include:

  • MTXX (Matrixx Initiatives)

  • SIGA (Siga Pharma)

  • CMN (Cantel Medical)

  • SXCI (SXC Health Solutions)

Note: We’re going to be having some escapee’s from the cold Northeast visiting with us here in FL (also colder than usual) for a few days so my postings will be spotty. Hope to be back with a steady stream of charts and market analysis by Monday.