Magazine article Modern Trader

Four Healthcare Buys and One (Big) Short

Magazine article Modern Trader

Four Healthcare Buys and One (Big) Short

Article excerpt

At one point last year I was with a zero weight in the overvalued healthcare sector.

What is notable about this is being zero weight in a 'defensive' sector even though the market was overvalued and my strict policy is against taking big sector bets.

With the Nasdaq Biotechnology Exchange Traded Fund (IBB) dropping from $400 to $325 in the last 12 weeks it was time to take another look, but even then the sector appeared overvalued although several names that were harmed without justification in the sector purge were making a short list of stock to watch.

Running 150 healthcare names through a 155-variable computer model based on Nov. 11 closing prices reveals where there is value in this sector (see "Diagnosing a sector").

We only looked at names with a greater than $400 million market cap that are expected to be profitable in 2016 (with exceptions CSU, ALKS and PODD). All names in this report have a five-year history, share price above $9 and trade at least 100,000 shares a day.

If you are looking for value, it will be difficult to find it here, as 85% of the 150 names are trading above 14X speculative estimates for next year.

Remember, the more than 100 healthcare sector names (mainly biotech) that are unprofitable are not included in this report.

We currently have four open recommendations (out of 91 overall) in this sector: KITE, MYL, TEVA & MR. I recently exited UTHR and jUNO. MR has been taken over but I have not yet exited. …

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