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Did
Healthcare Just Serve Up a Pullback 'Tell'? |
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Most of
the time, you can assess the average investor's buying mood (or lack
thereof) simply by looking at the broad market indices. But, even that
can
be deceiving on occasion. Sometimes, the stronger clues about the
market's undertow are far more subtle - like which stocks and industries
investors are choosing to step into in the face of a marketwide panic.
 Example?
Healthcare stocks ... hospitals and medical equipment/supplies stocks to
be specific. Though as a whole they were still down a tad Tuesday, within
each group there were too many big gainers to chalk it up to coincidence
or luck.(There was no more or no less good news for these healthcare stocks
than there was for other industries.)
What gives?
It's very likely to be a glimpse into what's bouncing around in investors'
heads, particularly after a devastating tumble on Tuesday. The risk
of a pullback has been growing subconsciously, but the reality of that
risk became undeniably conscious after a 2.3% implosion yesterday.
As such, the market's now starting to think defensively again, and -
you got it - healthcare is one of the save havens that's more apt to
survive a major market correction.
How long
will the defensive mentality last? As long as the market is perceived
to hold more risk than reward. Given the fact that the market is overbought
right as we head into the weakest period of the year, it's a scenario you
may want to start getting used to.
In any case,
since the market is clearly starting to warm up to these stocks [i.e.
they're going higher], here's a closer look at the hospital and medical
equipment names that not only made nice gains yesterday, but have been
trending higher for a while. You may find these are some of the
very few worthy tickers to own, if the broad market's deterioration continues.
To
their credit, hospitals did better in Q1 of 2010 than they did in Q1 of
2009 in terms of revenue as well as income. So, the stocks' advances
were not completely without fundamental merit.
 For
instance, Health Management Associates Inc. (NYSE:HMA) shares jumped
5% after the company topped first quarter earnings expectations by 2 cents
per share (netting 19 cents instead of the anticipated 17 cents). Susquehanna
Financial also upgraded Health Management Associates to a 'positive' rating,
based on current and future earnings.
Health Management
Associates wasn't alone though. Concord Medical Services Holdings Ltd.
(NYSE:CCM) also rallied yesterday following news that it was poised
to acquire four more revenue-bearing treatment centers in China. While
acquisitions can sometimes prove more costly than beneficial to the bottom
line, Concord Medical proved it can actually earn a solid ROI when it posted
last quarter's results.... revenue and income was up by double-digits,
all thanks to similar acquisitions.
United Health
Services (NYSE:UHS) shares also rallied 2.5% on Tuesday following the
announcement of first quarter numbers. Revenues were better by 3%, while
earnings were higher by 7%.
While none of
the numbers were bad, none were really game-changers either. The operating
EPS number for Health Management Associates, as an example, was merely
in line with the first quarter of last year. United Health Services did
better than the same quarter a year earlier, but its improved numbers pale
in comparison the improvements being seen in other sectors.
Yet, we saw
decided strength from this group that we didn't see from others.
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Medical
Equipment & Supplies |
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As with the
hospitals, medical equipment makers and healthcare supplies companies (mostly
the supplies stocks) saw their shares make big advances yesterday
on what would be considered mediocre news.
 Invacare
Corp. (NYSE:IVC) shares, for example, jumped 3.2% on Tuesday, and are
now up about 5% for the last week and a half. Most healthcare stocks,
not to mention the broad market, are down for that timeframe.
And the reason
for Invacare's strength lately? Nothing in particular. The only recent
bullish catalyst the stock would be benefiting from would be last Thursday's
earnings announcement. Operating earnings improved by 77%, while revenue
was basically flat. That's old news though, when in the midst of earnings
season.
Greatbatch
Inc. (NYSE:GB) is another surprising and unprompted winner; its shares
gained 3.2% on Tuesday for no clear reason other than perhaps speculation
about what good news Thursday's (April 29th) earnings call might offer
the investor community. Analysts are looking for earnings per share of
$0.38 cents, versus $0.41 for the same quarter a year ago. It's low hanging
fruit that should make for an easy 'beat', and may well fan the buying
flames once again.
Again, the results
- actual and expected - are nothing to be ashamed of, but none of
them are the kind of results that specifically make the suppliers and equipment
names within the healthcare world 'must-haves'.... especially while the
vast majority of other stocks are being tortured on the very same day for
very comparable results.
Whether they
know it or not, and whether it's deliberate or not, Tuesday's action
may be an important 'tell' from investors. Why healthcare, other than
the fact that hospitals and healthcare supplies are in consistent demand
24/7/365? The decision to step into those stocks specifically suggests
nervousness and a defensive mindset - and investors may well end up fulfilling
the rest of their prophecy by shedding everything but healthcare
names in the near future.
Most stocks
are up today, so it's difficult to test the theory right now. If the
next few days are like the last few days though - where these same two
groups continue to lead while the broad market struggles - then you'll
have a strong pool of picks to overcome the market's summer doldrums with.
By the way,
Tuesday's steep selloff clearly reminds us that we're sitting on a mountain
of risk at this point in time.... after an 11% rally. We've got
several sets of related data and interpretations to discuss, which we'll
get to in the blog this week, and in this weekend's newsletter.
(We're still waiting to see today's reaction to the selloff, on most fronts.)
Be sure to check
out the site over the course of the rest of this week, as we'll be posting
charts and thoughts about the market's true direction as soon as the data
makes it possible. We'll wrap it all up on Saturday.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
