Healthy Choices

 | May 03, 2012 | 3:10 PM EDT
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SXC Health Solutions' (SXCI) deal to acquire Catalyst Health Solutions (CHSI) brought attention to the pharmacy-benefit-management industry, and its continuing trend of consolidation.

Of course, Catalyst is no longer buyable as the companies await regulatory approval of the transaction. But SXC continues to show up on my scans -- not only of top medical-sector names, but also of top fundamental and technical performers.

That got me thinking. A week or so back, I wrote about business-service providers whose stocks are currently outpacing the general market. Within the medical sector, pharmacy-benefit-management names are definitely not the only outsourcers.

One of the stocks that's popped up and gotten my attention several times in recent weeks is IntegraMed (INMD), which specializes in some very niche-sounding businesses: It provides products and services to vein clinics and fertility clinics.

The stock has closed above its 50-day line consistently since mid-January. It pulled back to tag that line on Monday, but quickly rebounded. The company reported its first quarter before the open on Thursday, posting top- and bottom-line results essentially in line with views.

IntegraMed was trading slightly below its 10-day line midway through Thursday's session. The 10-day average has been moving lower as the stock has been consolidating, and was just about even with the 20-day on Thursday. Clearly, a move in the opposite direction -- in which the shorter moving average takes off -- would be a positive sign.  Such a move could signal a potential buy point for aggressive traders. For those wanting more confirmation that an uptrend has truly taken hold in the stock, wait for it to get within about 5% of its former high of  $13.50.

Another small-cap medical services name with some potential is Abiomed (ABMD), a maker of cardiac devices.  One of the reasons this stock caught my eye is its fundamentals are turning around. Like many medical-product and drug makers that are R&D intensive, Abiomed has reported losses for several years in a row. That is expected to change this year, with analysts forecasting earnings of $0.03 per share. Revenue growth has been solid in recent quarters, indicating demand for the products. In 2013, Abiomed is expected to continue pumping out healthy profits, with yearly income of $0.21 a share expected.

The recent consolidation has been rather sloppy and less than ideal. This week, it rallied to a multiyear high of $25.07, then has been pulling back in an orderly fashion, finding support at its 10-day line. Aggressive traders could enter a position as long as the stock remains above the 10-day average. A more conservative approach would be to wait for it to regain that prior high of $25.07.

Another caveat: The company is expected to report its fourth quarter on or around May 16. There is enough time to take advantage of a trade prior to that, but the earnings report can often be a catalyst for a big move in one direction or the other.

IntegraMed is an example of quarterly results not really moving the stock much. But look at a name I wrote about last week: ExlService Holdings (EXLS), which reported before Thursday's open. I cautioned then that small stocks could be punished excessively if there is something in the report that investors, traders and analysts disliked, and that's exactly what happened to ExlService.

The company met views, but issued revenue guidance at the low end of its prior range. The stock, which had been trading in a tight range above key moving averages, initially plunged 27% on the news Thursday morning, but regained much of that lost ground. Still, as of midday Thursday, it was down more than 7.5%, nowhere near ready to fill in the downside gap.

That's a fairly intense example of earnings-related punishment, but it is a great example of the perils of trading ahead of the report. With Abiomed, even if there is a big gap higher after the earnings results in a couple of weeks, the next pullback could offer a new entry point.

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