Articles

By: Costas Bocelli — April 25, 2019

3 Stocks That Got Thrown Out With the Bath Water

Medicare for all”…

Costas

Those three little words were all it took to cause an entire sector to implode.

While the S&P 500 posted a 6% decline, Healthcare gained 5% last year, outperforming the benchmark index by nearly 1100 basis points.

In fact, Healthcare was the best performing broad sector in 2018.  And coming into this year, Healthcare continued to outperform.

Behind Technology, Healthcare had been the second-ranked broad sector in terms of long-term relative strength.  But in a matter of days, all that changed drastically.

Investors got spooked about proposals by Democrat Bernie Sanders and other far-left presidential candidates.  These public figures are advocating for radical changes to the U.S. health-care system.  More specifically, they're looking to mandate government-sponsored health care for everyone.

In other words, “Medicare for all”

Those three little words caused a massive selloff throughout the entire Healthcare sector during the holiday-shortened week.  The S&P Healthcare Index plunged more than 5% in a matter of days as investors dumped anything and everything that was exposed to the sector.

As a result, Healthcare dropped off a cliff in our long-term relative strength rankings, falling from second place all the way down to seventh among the eleven broad sectors.

Valid Concerns? Or Overreaction?

To be sure, Sanders' proposals, should they be enacted, would cause widespread disruption across the entire healthcare industry.  So it's not surprise investors panicked, opting to sell everything connected to the Healthcare sector.

The question is, are investors' concerns valid, or are they overreacting?

First, no matter what's proposed, we're still a long way off from seeing actual healthcare legislation make it through both houses of Congress, let alone survive a veto by President Trump.

Second, for any of this rhetoric to gain traction, one of these far-left socialist candidates would actually have to win the general election in November 2020 --eighteen-months from now

And third, even if “Medicare for all” comes about, will it be “universally” bad news for every segment of the healthcare industry?

For sure, privately run healthcare insurance companies, such as United Healthcare (UNH), Cigna (CI) and Humana (HUM) would have cause for concern.

But what about other segments of healthcare such as the medical suppliers, services, equipment, devices and drugs manufacturers?

If millions of Americans gain access to low cost (or even free) treatment, demand for many products and services offered by healthcare companies would likely skyrocket.

Think of all the people who would benefit from a knee or hip replacement, but tolerate the pain and discomfort because they can't afford a corrective procedure.  Well, if Bernie & Co. get their way, the demand for artificial knee and hip replacements will explode.

That’s just one example.

That said, plenty of high quality stocks within the Healthcare sector were dragged down in the recent selloff, yet still possess strong qualities of technical strength.

Here Are 3 Strong Healthcare Stocks That Were Thrown Out With the Bath Water

Earlier, I speculated that companies that might benefit should “Medicare for all” become the law of the land would include firms providing medical equipment and technology devices.

And that's just what we're seeing now.

This narrow segment of the Healthcare sector continues to show strong qualities of relative strength, even when compared to the stock market, which just hit new all-time highs earlier this week.

Two stocks that recently pulled back with the rest of the Healthcare sector are: Edwards Lifesciences (EW)...

(Click any image to enlarge)

EW

... and Thermo Fisher Scientific (TMO).

TMO

Another narrow segment of the Healthcare sector that was dragged down relatively hard was the Drugs sector.

Here you’ll also find several stocks that have pulled back but continue to maintain a long-term positive trend, and possess strong qualities of relative strength.

One of those is Merck & Co. (MRK), the pharmaceutical drug manufacturer.

mrk

We'll keep our eye on these political controversies, because we know that many other investors are doing so as well.  We'll let them "overreact" to the news... while we stay focused on what really matters -- price action.

As we see more opportunities in this and other sectors, you'll be the first to know.

Until next time!

Costas

Costas

Archives

FREE e-Letter Sign Up