Healthcare Stocks: Due For a Selloff?

Scanning the charts this early Monday morning after the insane market action last week, which included the market tanking all week, followed by the big dead cat bounce rally on Friday, I was wondering what would pop on the radar screen for a buy or sell this week.

Actually not much of anything looked very interesting. Couple of crappy short sells, and no decent long candidates to my liking to speak of. No more naked shorting since the rule as been implemented by the SEC now, which means there's no more straight out short-selling for the time being.

Nonetheless, the best thing I can come up with this week is a sell on a big medical management company that has a decent 3:1 plus reward risk ratio to it. My sell candidate is Express Scripts (ESRX).

The following information comes from the company's website:

Founded in 1986 and never owned by a drug manufacturer, Express Scripts aligns its interests with those of health plan sponsors and their members.

This legacy of independence means that the company's programs and original research on the pharmacy benefit serve its clients. Express Scripts drives to lowest net cost by enabling better health and value at the consumer level. As evidence, Express Scripts' generic dispensing rate leads the industry.

We call St. Louis home, but there are administrative, pharmacy, and customer service operations throughout the United States and Canada. Express Scripts continues to expand its services and today there are more than 11,500 employees focused on our mission to make the use of prescription drugs safer and more affordable.

Our Code of Conduct provides the framework for our actions as we advance this mission in every aspect of our business.

Express Scripts handles millions of prescriptions each year through Home Delivery and at retail pharmacies. We share a common cause with each of our clients — to help offer a healthy prescription-drug benefit today and into the future.

In support of this effort, we've launched The Center for Cost-Effective Consumerism. The Center and its Advisory Board provide forward thinking and key insights to drive better health and value in the pharmacy benefit.

The Advisory Board includes nationally recognized experts in the science of human behavior and decision making. By combining insights from the Center with Express Scripts' proven ability to develop, test, and implement industry-leading programs, we provide the greatest opportunity to encourage smarter prescription-drug choices and achieve the lowest total plan cost.

Sell at 76.20 to 73.22

Stop-Loss 80.00

Take Profit Areas

64.94 to 60.80

57.81 to 55.47

53.30 to 51.15

42.54 to 40.54

My Analysis of the Medical Sector

Ok, we all need health care from time to time. No wealth without health right? But with the rising costs of health care, and with the problems of the economy, and rising unemployment right now to pay for that healthcare, there comes a point where the cost of health care is just too much for most people leading to the decision of foregoing the healthcare until the funds are available to pay for it.

As part of the election hoopla either of the presidential candidates is liable to say something about high healthcare costs, and the whole medical sector could tank big time because the next president to be will talk about reigning in current high medical costs.

I remember one month before Bill Clinton's first election to the Presidency. He stood at Merck Pharmaceuticals with the Merck board of director's behind him, and made a statement to the effect that he and Hillary were going to put a stop to the high health costs, the drug, health insurance companies, and HMO's were charging the American people.

The Merck board of directors were behind him, and they looked shocked. Immediately, there was a huge sell of in the whole medical sector . The following Wednesday, I bought into the medical sector carnage caused by Clinton's radical statement, and made 75% on the rebound in four months with one stock. One of the sweetest trades of my life. I'll never forget it.

The election is a short time away now. The candidates could talk trash about the medical companies, and it could be tank city again, possibly.

Actually I believe Americans simply won't be able to afford current medical costs right now, and the medical companies will have to reduce prices a little or a lot depending on the near to intermediate term. Doing this would squeeze their profit margins, and provide a ripe environment for lower stock prices.

If these two situations come together, then it's a perfect storm, to sell the "health" out of healthcare stocks, and a big quick crash, with a great opportunity to buy in for a rebound. The market loves doing stuff like this, and when you are prepared, fast, and nimble, booking profits can be as easy as taking a lollipop from the doctor's office desk.

Disclosure: Short

Comments

[Fighting Yoda:]

When the inevitable recession happens and the companying stock aversion - all stocks will fall - HC may not fall as much as others - it is popularly believed to be a defensive sector.

In any case - Sell Sell is the mantra in the current times.

2008 Sep 22 05:54 PM

[Zoro:]

I don't even think you know what Express Scripts does. You talk of health care costs in general, but they deal with prescriptions. Both ESRX and MHS are working to bring the cost of drugs down, and they're getting better profit margins on generics. It's one of the few safe havens in a market like this.

2008 Sep 22 07:35 PM

[Michael Mic...:]

Covered our ESRX short last Thursday with a 25% profit. The general market sure helped a lot with your short positions last week. Our long positions were all stopped out. www.invest2success.com

2008 Oct 11 07:28 PM