3 Sell Candidates in Healthcare
by Alan J. Brochstein, CFA
AB Analytical Services
The stock market is beginning to wake up to the rapidly proliferating credit crunch. Many Healthcare investors will no doubt take comfort in recognizing that the sector is extremely immune from these developing macroeconomic issues. If there is one thing that I have learned and learned again, though, is that fundamentals can get lost in the shuffle pretty rapidly when everything is going down. With that in mind, I have identified 3 stocks in the sector that I believe have an especially high risk of experiencing large price declines in the coming weeks. Using StockVal, I created a screen that would quickly help me potentially identify stocks with certain characteristics. In particular, I was looking for stocks with relatively high PE ratios (>24), that were well above their 52-week low but within 15% of their 52-week high, that have climbed immensely over the past 5 years and that are not experiencing upwards revisions in their earnings estimates. I restricted the list to market caps in excess of $2.5 billion.
The first name is Celgene (CELG), one of the few Biotech names that have been working, though it is lagging the market now year-to-date. This one had a rather good “bad” quarter in Q1, growing “only” 61%, which was well below the growth rates in the prior two quarters. Q2 was definitely better, with the growth picking up to 76%. The stock moved up to it’s the resistance at 61. While it is hard to be fundamentally negative on the name, this is one that profit-taking by some could induce more by others. This one is a 15-bagger over the past 5 years. The key downside support level to watch is 56, my chart-based target is 50, and I would wave the towel at 65.
The second name is Hologic (HOLX), which is a member of my watchlist and which I am actually considering shorting. I mentioned this one in my interview on this website earlier this month. To rehash, I believe that the adoption ramp for digital mammography was much steeper than expected, but that it is a mistake to assume that it will keep up at this pace. The company is in the middle of a big acquisition that was quite expensive as well. As you can see in the chart below, this one has been marking time since it plunged following the deal announcement (CYTC). I know that a certain “Mad” guy loves the stock, but I see an expensive stock rolling over. As you can see, this one is something like a 15-bagger since early 2003. The key downside support level is 51, my chart-based target is 40, and I would wave the white flag at 56.50.
The last name is Stryker (SYK), which dropped a bit today on its rival’s weak report. Historically, this stock is cheap relative to its own history, but it still is being valued somewhat highly. The industry has had some issues over the past few years. While this stock is not up nearly as much as the other two, it still has more than doubled over the past five years. The key support is 63, the chart-based target is 55 and the stop-loss is at 68.
AB Analytical Services is a regular contributor to BioHealth Investor
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AB Analytical Services
The stock market is beginning to wake up to the rapidly proliferating credit crunch. Many Healthcare investors will no doubt take comfort in recognizing that the sector is extremely immune from these developing macroeconomic issues. If there is one thing that I have learned and learned again, though, is that fundamentals can get lost in the shuffle pretty rapidly when everything is going down. With that in mind, I have identified 3 stocks in the sector that I believe have an especially high risk of experiencing large price declines in the coming weeks. Using StockVal, I created a screen that would quickly help me potentially identify stocks with certain characteristics. In particular, I was looking for stocks with relatively high PE ratios (>24), that were well above their 52-week low but within 15% of their 52-week high, that have climbed immensely over the past 5 years and that are not experiencing upwards revisions in their earnings estimates. I restricted the list to market caps in excess of $2.5 billion.
The first name is Celgene (CELG), one of the few Biotech names that have been working, though it is lagging the market now year-to-date. This one had a rather good “bad” quarter in Q1, growing “only” 61%, which was well below the growth rates in the prior two quarters. Q2 was definitely better, with the growth picking up to 76%. The stock moved up to it’s the resistance at 61. While it is hard to be fundamentally negative on the name, this is one that profit-taking by some could induce more by others. This one is a 15-bagger over the past 5 years. The key downside support level to watch is 56, my chart-based target is 50, and I would wave the towel at 65.
The second name is Hologic (HOLX), which is a member of my watchlist and which I am actually considering shorting. I mentioned this one in my interview on this website earlier this month. To rehash, I believe that the adoption ramp for digital mammography was much steeper than expected, but that it is a mistake to assume that it will keep up at this pace. The company is in the middle of a big acquisition that was quite expensive as well. As you can see in the chart below, this one has been marking time since it plunged following the deal announcement (CYTC). I know that a certain “Mad” guy loves the stock, but I see an expensive stock rolling over. As you can see, this one is something like a 15-bagger since early 2003. The key downside support level is 51, my chart-based target is 40, and I would wave the white flag at 56.50.
The last name is Stryker (SYK), which dropped a bit today on its rival’s weak report. Historically, this stock is cheap relative to its own history, but it still is being valued somewhat highly. The industry has had some issues over the past few years. While this stock is not up nearly as much as the other two, it still has more than doubled over the past five years. The key support is 63, the chart-based target is 55 and the stop-loss is at 68.AB Analytical Services is a regular contributor to BioHealth Investor
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posted by Nico at
12:08 PM
2 Comments:
Your CELG short idea is terrible and doesn't even fit your screening criteria. It may have been timely back in May when it hit record high but since then its been back down in the mid-50s. It just put together a monster quarter and served-up the best earnings beat in quite some time. Moreover, several analysts did increase earnings estimates (and target prices) since yesterday's CC and the company did as well so there goes one of your three screening factors.
First, thanks for your comments.
As far as calling it a "short" idea, I don't believe that I characterized as such. I think that owners should consider selling, especially if it is a large holding. I do believe that HOLX, though is a short, which I mentioned in the article.
As far as one of the factors not being valid still, I disagree. I wasn't as clear as I could have been, but I tend to look at the 2008 estimate change over the past 12 weeks. In the case of CELG, that number has been declining somewhat over the past quarter. Unless it rose above 1.74, I would characterize it as "not rising" literally.
As far as
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