Biotechs, HMOs, Digital Records Push Aid Health Stocks
Several parts of the medical sector are in the pink.
Three medical industry groups are in the top 11 of IBD’s 197 groups, based on six-month price performance. A fourth is No. 30.
The overall sector is held back by the four additional medical industry groups that are in the bottom 30 of IBD’s 197, going into Thursday.
“There are quite a few macro forces at work,” said Steve Silver, equity analyst for S&P Capital IQ. “Some industry groups are beneficiaries. Others are victims.”
Several sector leaders are clustered in two of the top 30 groups.
Alexion Pharmaceuticals (ALXN) and Celgene(CELG) are in No. 2-ranked medical-biomed/biotech. Takeovers of small biotechs have helped drive the group, Silver says.
Endo Pharmaceuticals (ENDP) is in No. 30 medical-ethical drugs.
Biomed/biotech was No. 23 six weeks ago and Medical-ethical was No. 29.
Wells Fargo Advantage Growth , with $7.6 billion in assets, boosted its Alexion stake in its latest disclosure period. The $4 billion Goldman Sachs Growth Opportunities recently began its position.
The $2.6 billion Janus Global Select recently began to invest in Celgene. And $32 billion Fidelity Low Priced Stock Fund added to its Endo holdings.
Alexion is up 49% and Celgene 23% in the past six months. Endo is down 6% but up 42% from its Oct. 4 low.
All three are driven by products with competitive advantages. “Several treat rare, life-threatening diseases, so they are powerful niche medicines,” Silver said.
Alexion treatments serve small patient groups. No one else makes treatments for them.
Its Soliris treats the blood disorder known as PNH. It won approval in September for patients with the syndrome called aHUS.
“Cash flow goes to profits and pays for takeovers,” Silver said.
Celgene keeps finding new applications for its cancer treatment Revlimid. The company has several other drugs in various stages of development.
Endo is diversified with devices as well as drugs. Silver sees the firm’s acquisition streak slowing to give it time to pay down debt.
Going forward, Greg Bolan, an analyst for Sterne Agee, likes HMOs. As workplace health plans shift more costs onto plan members, more of them switch to HMOs.
IBD’s medical-managed care group ranks No. 10.
Bolan also likes health care information technology. Medical-systems/equipment is ranked No. 11.
“The government’s $30 billion in incentives to physicians and hospitals to take record-keeping electronic from paper is a massive jolt of incremental revenues,” he said.
Outsourcing has been another driver for the sector. Small caps like Parexel (PRXL) andCovance (CVD) help big-cap drug and device makers with several stages of new product development, Bolan says.
Parexel is barely above where it was 52 weeks ago. Its Composite Rating from IBD is a dreadful 23.
After eight quarters of slowing earnings per share growth, Covance’s EPS grew 0%, 14% and 42% the past three stanzas. Sales growth also accelerated.
Still, the stock is way down over the past 12 months. It is struggling to regain its 10-week line, which is below its 40-week average.
source form: investors
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