4 Plays for the Healthcare Rebound

Mar. 24, 2011 9:44 AM ETUAM, AMSG, CHSI, ACL-OLD4 Comments
John P. Reese profile picture
John P. Reese

For much of the two-year-plus stock market rally, the healthcare sector has been left far behind the rest of the market. From the March 9, 2009 low through Feb. 23 of this year, for example, the S&P 500 gained more than 93%; the Healthcare Select SPDR exchange-traded fund (XLV), meanwhile, gained less than half that -- just 46.3%.

That's changed recently. While the rest of the market has stumbled amid the turmoil in the Middle East and the tragic earthquake and tsunami in Japan, many healthcare stocks have pushed higher. And year-to-date, long-term care facilities, medical care, and health care plans are all among the top industries in terms of year-to-date returns, according to Morningstar.

Even with their strong performance in recent months, many healthcare stocks still look quite attractive to my Guru Strategies, each of which is based on the approach of a different investing great. With fears about the healthcare bill starting to subside, and with fears of an economic slowdown causing many investors to focus more on defensive areas of the market, I thought it would be a good time to take a look at some of the healthcare plays my models are highest on right now.

Catalyst Health Solutions Inc. (CHSI): Based in Maryland, this pharmacy benefits manager ($2.4 billion market cap) earlier this month purchased Walgreen's (WAG) PBM operations for $525 million, in a deal that increased its membership from 7 million to 18 million. Shares have surged about 20% since then, but two of my models think Catalyst is still a good buy at its current price.

One is my James O'Shaughnessy-based growth stock model, which looks for firms that have upped earnings per share in each year of the past five-year period, which Catalyst has done -- even in the face of one of the nastiest recessions

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John P. Reese profile picture
John P. Reese is considered an expert in the systematic investing strategies of legendary investors, including Peter Lynch, Ben Graham, Warren Buffett and others. He has been active in the development of fundamentally-based quantitative models since the mid-90s. His research on Seeking Alpha will include stock ideas, strategy and value investing pieces, behavioral finance concepts, systematic and modeling methods as well as other long term investing concepts. John is founder and CEO of Validea.com and also co-founder of Validea Capital Management. Validea Capital runs an actively managed ETF that utilizes the fundamental stock selection models of investing legends as well as a set of robo advisor allocations through Validea Legends and Validea Legends Income. John holds two U.S. patents in the area of automated stock analysis and is considered an expert in the field of quantitative stock selection using the strategies of investing legends. John is a columnist for TheStreet.com, Forbes.com and Canada's Globe & Mail and is co-author of “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies". He holds a master's of business administration from Harvard Business School and a degree in computer science from MIT.A more complete biography can be found here: http://en.wikipedia.org/wiki/John_P._Reese

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