Part of my stock-trading background is still relevant when managing longer-term portfolios.
"Long term" is not the same as "set and forget." Over time, people with many years to invest have had better opportunities to make up for losses, and to use downturns as buying opportunities. But in a downturn like we're currently experiencing, it's imperative to cut losses where appropriate, and make some investments while prices are low.
This is where my stock trading background comes into play. I have gotten into the habit of screening for stocks and sectors that are holding up better than the general market in a correction.
Until recently, the health care sector was the year-to-date leader. It's been supplanted by utilities, the traditional defensive investment in a market selloff. Nonetheless, when you slice and dice sub-sector performance, hospitals, biotechs and drug makers are continuing to hold their own.
The Ebola outbreak has been boosting the stocks of companies such as micro-cap iBio (IBIO), which makes vaccines and other therapeutic treatments. But there are other examples throughout the sector of stocks that are still trading near their highs.
Natus Medical (BABY), which makes products to treat illnesses in newborns, rallied to an all-time high Thursday. It announced a new ultrasound system Thursday, ahead of its Oct. 22 third-quarter earnings report. Analysts are expecting the company to earn $0.31 per share, up a penny from the year-ago quarter.
Charles River Laboratories (CRL), which provides clinical support for the pharmaceutical industry, got support at its 200-day line this week, but hasn't been able to break through to regain its March high of $62.50.
The stock got a boost by a SunTrust analyst upgrade, but I never get too excited about analyst-driven moves. These can be short-lived.
Nonetheless, there are some good technical developments recently, such as the bullish moving-average crossover that occurred earlier this month. The company is set to report third-quarter results on Oct. 29. Analysts are projecting earnings of $0.80 per share, $0.01 higher than a year ago.
Another medical-sector leader is SciClone (SCLN), a California biotech that develops products for China. One of its focus areas is -- wait for it -- infectious diseases!
This is one of those under $10 stocks, which are squarely in the speculative camp. It's a small company, with a market cap of just $397.4 million, and it moves an average of 597,000 shares per day.
I'm giving you some examples today of medical names that are holding up in a downward trending market. I don't particularly like placing bets on single stocks, especially small, speculative names.
There are larger medical sector stocks, such as Allergan (AGN) and Becton Dickinson (BDX) that are also trading hear their highs. We know that smaller cap names are typically more volatile but, given time and patience, they deliver larger returns.
Typically, if a sector that has had a long run-up holds its value in a market correction, I prefer to hold, or just add slightly to the position, rather than selling or making a huge addition to it. Medical hasn't rolled over yet, but there is still potential for a new sector on the block to rotate into leadership when the stocks go back into rally mode.