You know how you could have -- and may still -- handily beat the averages?
Simply develop a portfolio of healthcare companies of all shapes and sizes that do nothing but try to service the colossus that is the American medical system.
As I peruse the charts this weekend, it almost seems too easy. There's simply nothing like this group. Oh sure, there are the companies that do well in a low-energy regime: hotels, restaurants, retailers, truckers and even the derivative plays like Owens Corning (OC) and Ashland (ASH). These are stocks that everyone knows except those who still believe that the additional dollars aren't being spent. That non-spend thesis has kept you out of the second-best group of stocks for certain.
But it is pretty unbelievable how much money has poured into the healthcare sector.
We all know this is the era when Amgen (AMGN), BioMarin (BMRN), Biogen-Ideec (BIIB), Celgene (CELG), Regeneron (REGN), Vertex (VRTX), Alexion (ALXN), Pharmacyclics (PCYC), Isis Pharma (ISIS) and so many other biotechs became the darlings of a lower-growth lower-interest-rate environment. A combination of voracious large capitalization drug stocks not having a real pipeline to keep up with their generic cliffs and the creation of blockbuster drugs from years of research has propelled this group.
(Check out Trifecta Stocks' Bob Lang's latest technical analysis of CEL, ISIS and CVS and chart work of Real Money Pro's Gary Berman's on AGMN. Also, Real Money Pros's Rob Moreno IDs two biotech that may be ripe for a short.)
The only outliers in old pharma, at least when it comes to the charts, are Bristol-Myers (BMY) and Lilly (LLY), the former a re-rating of an old line drug company to a fast-growing one and the latter just a plain out-and-out mystery to me, an overvalued stock that never comes in.
Beyond biotechs, the second group that astounds remains the companies that rein in costs to the system: AmerisourceBergen (ABC), McKesson (MCK) and Cardinal Health (CAH) continue to dominate. These stocks never quit and the analysts' love for them never stops. These are perhaps the most amazing stocks of the era because what they do is so obvious and they do it so consistently that it's almost like these stocks were created for stock market performance.
The third group health group that never seems to stop delivering, despite endless attempts by analysts to call the top? The health maintenance organizations that turned out to be the biggest winners of the Affordable Care Act: Aetna (AET), Anthem (ANTM), Cigna (CI), Humana (HUM) and UnitedHealth (UNH). I don't even know if it is worth distinguishing them anymore. I have had such a hard time with these because I have repeatedly thought they were done or had to have run out of gas. The charitable trust got a fantastic move out of Cigna and it turned out we got a small fraction of what this company's stock has given you.
As we are basically in inning two of the Affordable Care Act and it is now unlikely to be rolled back, it is reasonable to think that these stocks aren't even done going higher, especially when you consider that Aetna and Cigna trade at discounts to the S&P 500 at 15x earnings! Don't forget these are also levered to increased employment in the country. So they are doubly blessed.
The fourth group? Those that have augmented their fortunes through mergers: Actavis (ACT), Becton Dickinson (BDX), Medtronic (MDT), Mallinckrodt (MNK), and Thermo Fisher (TMO). These companies have many years of earnings growth ahead either because of they are now inverted (Actavis and Medtronic) or because their acquisitions have so much synergy. These stocks are miracles, frankly, with Actavis being the best example. I have spent some time with CEO Brent Saunders and was initially a tad skeptical because I have not particularly liked what look like roll-ups. But calling Actavis a roll-up seems almost insulting now.
The fifth group: the suppliers and ancillary service companies. Here I prefer Henry Schein (HSIC), just added to the S&P 500, Laboratory (LH), Stericycle (SRCL) and Quest Diagnostics (DGX). These stocks seem to have no roof on them whatsoever. The stock market always loves this kind of company because we are always doing more testing and more examining and that makes these stocks ideal.
Sixth, there are the companies that are perceived as saving the system money: Perrigo (PRGO), Teva (TEVA), Mylan (MYL) and Cerner (CERN). The first three are generic drug companies that have been on fire of late and the third is the consistent supplier of healthcare solutions. Perrigo has always been my favorite because of its unique combination of knock-offs and prescription drugs. I have traditionally not liked Teva or Mylan because they, chiefly, are commodity players. But I now feel that I have become too much of a snob as this rising tide is lifting all boats.
Finally, seventh, there are the drugstore chains, Walgreens Boots Alliance (WBA), CVS Health (CVS) and Rite Aid (RAD). The first is at the beginning of internationalization, the second is the pioneer of new paradigm (a retail healthcare company) and the latter is attempting to be the next CVS with its recent acquisition of a pharmacy benefit manager.
Now, of course, I have left out a ton of stocks in this survey course of the group. And I have chosen to highlight only the ones that hit me by looking at the best charts over the weekend. But you need to focus on this list because if we are going to have a selloff related to a slowdown of some sort the buyers will come right back to this group and its seven pillars of strength.
