Why a health care trade is worth considering today … And a new 52-week high for subscribers of Louis Navellier

“Health care stocks.”

Did your stomach just churn?

If your portfolio is full of them, I’m guessing you felt a twinge.

That’s because while the S&P has been surging in 2019, health care has been languishing. And the pain from recent days has been especially acute. As of yesterday, the sector had fallen 5% over the prior five sessions.

Below is a snapshot of the S&P’s 11 sectors. As you can see, they’re all enjoying a banner year so far … except health care coming in with negative performance at the bottom.

***What’s behind the sell-off and general underperformance this year?

In short, investors are worrying that left-leaning universal health coverage policies are gaining support. And if adopted, those policies would hinder profits for health care stocks.

Last week’s sell-off began when Democratic presidential hopeful, Bernie Sanders, received strong support for his Medicare for All position, when he discussed it at a Fox News town hall in Pennsylvania. This comes on the heels of the Medicare for All bill he introduced earlier in April.

Sanders’ bill would cover primary and preventive care, prescription drugs, dental and vision care, mental health and substance abuse treatment, maternity and newborn, and long-term care — all through the government. It would also enable Americans to see any doctor they wanted with zero deductible and zero copay.

The practical effect would be an end to the private health insurance market, and Sanders pulled no punches in describing his motivation behind this. At a news conference, he said:

The current debate over Medicare for All really has nothing to do with health care. It has everything to do with greed and profiteering. It is about whether we continue a dysfunctional system.

***Now, the reality is any real policy change is a long way off, if at all … and in the meantime, beaten-down health care stocks are poised for a rally

You see, while politicized headlines are leading to a sell-off from the herd, investors who know better are seeing beyond the fearmongering. And the reality is health care earnings are up. For more on this, I’m going to turn to John Jagerson and Wade Hansen, editors of Strategic Trader. From their latest market update:

The health care sector is currently the fastest growing group in the S&P 500 at the bottom line. Profits are expected to be up 4%-5% compared to the same quarter last year. Revenues in this sector are currently in second place (behind the communications sector) and are likely to grow 12%-14%.

The success of the health care sector has been flying under the radar of most investors because of the dramatic selling over the last few weeks caused by worries about a potential for a Medicare for All plan touted by Democratic 2020 presidential hopefuls.

We feel that investors are over-selling the potential for further government intervention in the health care market.

John and Wade then call back to the Affordable Care Act, noting that, love it or hate it, Obamacare was a huge stimulus for demand in the health care sector. And there’s no reason to believe similar expansive health care programs couldn’t have similar effects on select groups within the sector.

It’s then that John and Wade highlight a specific stock that’s worth consideration as a trade. Back to their update:

Although we are a little nervous about health insurance companies, other groups in the sector, such as equipment makers, distributors and service providers, could be a great place for bullish trades as the dip starts to bounce. For example, a stock like Agilent Technologies (A) could be poised to rally along with its peers if support holds.

 

 

We’ll continue to keep you updated on developments in the health care sector as they unfold. And if you’d like to read more from John and Wade,click here.

***Meanwhile, Louis Navellier called it — did you buy it?

I hate to say it, but some investors are just better at picking winning stocks than others.

What I hate to say even more is that I am not among that group.

But because of this, I hold those individuals who have long, established track records of picking winners in the highest esteem. And few investors have been more successful over the years than our own Louis Navellier, editor of Growth Investor

.

It turns out, Louis has done it again … and I hope you’ve been along for the ride.

Earlier this week, Louis’ pick, Lululemon, soared to a new 52-week high. The stock has been on a tear in 2019, surging 47% so far, nearly topping $180 a share on Wednesday.

 

In a press release on Wednesday, management noted its five-year growth plan aims to “double men’s, double digital, and quadruple international” revenues. They went on to say that investors should expect revenue growth “in the low teens” for the next five years, with operating income and earnings-per-share gains leading sales growth.

This comes as little surprise to Louis’ subscribers. Here’s what Louis told readers back on March 28th:

Lululemon athletica came out with its fourth-quarter and fiscal-year numbers yesterday. And LULU slayed. Again.

Not only did its numbers show why LULU stock is up 15.7% today and more than 65% in the past 12 months, but it did the analysts one better. It guided far better than analysts expectations for the current fiscal year.

That’s like manna for analysts and big investors, particularly in this market where most companies are lowering their expectations as growth from the big tax cut has waned and they can’t keep artificially boosting earnings by buying back stock …

Not surprisingly, my Portfolio Grader rates LULU an A.

My colleague, Luis Hernandez put Lulu on your radar back in our January 15th Digest. Did you jump into the trade? If so, you’d be sitting on 25% gains so far. And from the looks of it, there’s more to come. Louis likes adding Lulu to your portfolio up to $184.

Congrats to Louis on another great call.

***If Louis’ numbers-based market approach resonates with you, he’s created a tool you can use — for free

While it certainly can’t replace Louis and his market analysis skill, Louis’ Portfolio Grader is a fantastic, free tool that can help you evaluate the fundamentals of your own stocks.

Frankly, it’s more important than ever to be aware of the strength of your specific holdings in today’s market. As to why, I’ll turn back to Louis. From his April issue:

The bottom line: We are now entering a stock picker’s market. I expect the fundamentally weak stocks that have been propelled higher by index funds to falter in the upcoming weeks, especially as the pension funding season ends, first-quarter earnings season commences and index buying pressure ebbs. As a result, the stock market will narrow and it will soon be “every stock for itself.”

While this bull market might have some kick left in it, it appears it’s not longer the “rising tide lifts all boats” environment which we’ve enjoyed in recent years. That means if you’re not sure about the earnings power of your specific holdings, it’s time to do some research. So, feel free to use Louis’ Portfolio Grader.

Of course, if you’d rather just outsource your picks to a proven market veteran like Louis, you can always click here to learn more about becoming a subscriber.

Have a good evening,

Jeff Remsburg