Recently I described what I call the "Stealth Health Rally," with healthcare suddenly but quietly asserting market leadership. Today, I want to try to identify some potential names to consider investigating further. I ran a screen that is designed to highlight stocks that have been lagging but have started beating the market. I also insisted that their earnings revisions be stable or rising. Here are the criteria:
- Market Cap > $500mm
- 12-month Price Return < S&P 500
- 3-month Price Return > S&P 500
- Earnings Estimates vs. 3 months ago > 0
Here are the 12 names that met the criteria:
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I follow several of these and actually own one in one of my model portfolios. With the exception of Intuitive Surgical (ISRG), all have fairly low PE valuations. Several pay above-market dividend yields.
Baxter (BAX) lost one-third of its value last May on a couple of issues and had been hampered previously by a recall of its infusion pumps.
Bristol-Myers Squibb (BMY) is breaking out, but its business is still in decline.
Charles River (CRL) has suffered from a big slowdown in pre-clinical acitivity after capacity grew excessively. The company was forced to abandon a merger last year.
Lab company Quest Diagnostics (DGX) has run out of big acquisitions to do, but it continues to grow reasonably and looks quite reasonable.
Gentiva Health Services (GTIV) is one of the four publicly-traded Home Health providers and has the lowest Medicare exposure of the group.
Intuitive Surgical (ISRG) is one of my favorite companies, as it is a virtual monopoly. The stock broke out recently and looks to be headed for 400+. The valuation may look high, but the growth is high and the cash balances huge. I took a look at this one over on the TradeKing blog late last year if you want a deeper perspective.
I also have followed Lincare (LNCR) for a long time. The company does home oxygen delivery, where reimbursement has been crushed over the past five years. They are extremely efficient and have been gaining share as competitors exit the market.
I have never been much of a fan of Mylan (MYL), the generic-maker.
Owens & Minor (OMI) is a distributor of medical and surgical products to hospitals. This is a fantastic company, though a bit expensive now. They recently signed an interesting logistics deal for CareFusion (CFN). I expect that improvement in smaller hospitals in the coming years will help OMI. We hold it in the Conservative Growth/Balanced Model Portfolio, though the valuation has led us to trim it recently.
Select Medical (SEM) is a late 2009 IPO after having been traded publicly before its LBO in 2005. The company operates acute-care facilities, both inpatient and outpatient.
Stryker (SYK), which just expanded into neuromodulator devices with its acquisition of Boston Scientific's division, makes MedSurg equipment used in hospitals as well as implant devices (hips and knees). The company is very well managed.
Zimmer (ZMH) competes with SYK in the implant business. The company has been struggling with a regulatory crackdown on its selling practices. The company is likely to benefit from favorable demographic trends that have perhaps been interrupted by the economic decline in recent years.