Successful investors know that being able to recognize sectors with momentum can be the most effective way to find rallies and get on board to reap the rewards. Big money can be made by taking advantage of sectors on the move - especially when they are showing strength compared to the overall market.
That said, when looking at a company within a sector that has seen extraordinary gains, it is important to make sure to understand why the gains occurred, so as to not climb in right at the top. "Buy high, sell low", is not a mantra that many care to live by.
Lets take a look at a sector that has been performing very well this last week - the healthcare sector. Are you looking for a healthcare stock to round out your portfolio? How about one with a little bullish momentum? Here are five stocks in the healthcare sector that have just produced relatively large one-week gains, and have strong bullish sentiment in the Stock Picking Community.
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Company
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Ticker
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One-Week Gain*
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Community Sentiment
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Health Net
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NYSE:HNT
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19.0%
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100% Bullish
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Humana
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NYSE:HUM
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14.4%
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100% Bullish
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Noven Pharmaceuticals
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Nasdaq:NOVN
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14.1%
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100% Bullish
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UnitedHealth Group
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NYSE:UNH
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11.4%
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82% Bullish
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Wellpoint
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NYSE:WLP
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11.2%
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100% Bullish
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*Data as of market close May, 22, 2008
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As a sector that is traditionally strong in times of financial worry, healthcare would seem a good safe haven in this current market turmoil. Just this Tuesday May 20, the Dow dove 199 points, with decliners outnumbering advancers 2 to 1. That same day, healthcare services provider Health Net, jumped 7% to close almost $2 higher. Humana had a similar move on Tuesday, jumping almost $4 to close almost 7.5% above the previous days close.
It has been a volatile year so far within the healthcare sector. This isn't surprising, considering it is an election year, and healthcare has been a hot topic during this heated race. Back when Senator Hillary Clinton was the first lady, she led the charge in trying to introduce universal healthcare to the U.S. Now running for president, she has taken it to the public even harder, along with Senators Barack Obama and John McCain. Add these events in the news to a healthcare earnings season, and volatility is sure to ensue. To protect us from this volatility, what we should be looking for is a company in this sector that has good earnings, is valued cheaply at current prices, and has a bit of momentum to take them forward. (For further reading, check out Volatility's Impact On Market Returns.)
Best in Class
WellPoint is a favorite with earnings per share of $5.40 compared to an industry average of just $2.41. As of Thursday close, this gives us a price-to-earnings valuation of 10-times, which is fantastic when compared against the industry average of 12-times earnings. WellPoint is also one of the largest, with revenues topping $60 billion. Even though, WellPoint has seen some recent downgrades, consensus estimates see this stock continuing to reward its investors with a mean and median price target ot $61 - about a 10% premium on today's prices. (Want to learn more about what these numbers mean? Read our related article What Are Fundamentals?)
Because we are less than half of a year away from the polls, I do see some news risk in the near-term. However, many companies in this sector have declined to levels that are very attractive to me. As financial woes continue to mount, healthcare is essentially a consumer staple that one cannot go without. Even when the banks are turning you down for the big equity pull out for the new addition to your home, you can still get sick! With increasing earnings, and lower valuations, the healthcare sector should continue to impress for those looking to find a good company at the right price.
Add Your Two Cents
What do you think will happen with WellPoint going forward? Will continued worries in the financial markets keep investors moving into safe haven sectors such as healthcare? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
