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Healthcare Stocks
Many analysts expect hospitals, pharmaceutical makers, and providers of
healthcare information systems to be the biggest beneficiaries of the
new healthcare bill.
If you want to participate, here’s how to set up stock screens for
finding worthwhile investment candidates in these categories. If you’re
not familiar with the term, screening is a process for scanning the
market for stocks meeting your specific requirements.
We’ll use the relatively powerful screening program provided by
FINVIZ.com to do the job. The program is easy to use and it’s free.
Find it from the FINVIZ homepage (finviz.com)
by selecting Screener. FINVIZ calls its selection parameters “filters.”
On the Filters bar, select “All” so that you can see all of the
available filters at the same time.
Hospitals
We’ll start by searching for hospital stocks. Use the Industry dropdown
menu to specify Hospitals.
Next, we’ll use stock analysts’ buy/sell ratings to isolate promising
candidates. While analysts sometimes get it wrong, analyzing stocks is
their day job and it makes sense to piggyback on their efforts. FINVIZ
compiles the buy/sell ratings made by analysts following a stock into
the following categories: strong buy, buy, hold, sell, and strong sell.
Because they are reluctant to advise selling a stock, many analysts rate
a stock at “hold” when they really mean “sell.”
Use the “Analyst Recommendation” menu to limit the screen to “strong
buy” or “buy” rated stocks by specifying “buy or better.”
Finally, we’ll use institutional ownership to further tilt the odds in
our favor. Institutions are mutual funds, banks, and pension plans.
Thanks to the huge trading commissions that they generate, these big
players have access to market moving information that we’ll never see.
Thus, if these wired-in players don’t own a stock, you shouldn’t either.
Institutional ownership is the percentage of outstanding shares owned by
institutional investors and generally runs from 40% to 95% for in-favor
stocks. Use the Institutional Ownership menu to select “Over 40%.”
My screen turned up four stocks, three that own and operate hospitals,
and one that provides outsourced services to hospitals.
•
Community Health Systems
(CYH), the largest of the group, operates 122 hospitals, mostly in rural
area or small cities in 29 states.
• Health Management Systems (HMA) operates 55 acute care and psychiatric
hospitals, also concentrated in rural areas, in 15 states, and mostly in
the southeastern U.S.
• Tenet Healthcare (THC) operates 50 acute care hospitals, ambulatory
surgery centers and diagnostic imaging centers in both urban and rural
areas, mostly in California, Georgia, and Texas. Tenet was poorly
managed and was the target of federal investigations regarding its
billing practices in the 2005-2008 timeframe, but appears to be on the
right track now.
• Rehabcare Group (RHB), the smallest of the group in terms of market
capitalization (value of shares outstanding), does not operate its own
hospitals. Instead, it provides rehabilitation program management and
skilled nursing services to hospitals.
Information Systems
Healthcare information systems makers provide software used to automate
hospital clinical, administrative and financial functions, as well as
patient record systems. Use the same screening terms to find them except
select Healthcare Information Services instead of Hospitals from the
Industry menu. The screen listed four stocks, however only one, Eclipsys
(ECLP), provides the full suite of solutions described above.
Drug Makers
You could use the same screening terms except selecting Drug
Manufacturers from the Industry menu to find pharmaceutical companies.
However, because drug makers range from tiny to very large firms, use
the Market Capitalization menu to limit the field to Large-Cap ($10
billion plus) firms, which are the safest bets. This screen listed four
drug makers.
• Abbott Laboratories (ABT)
• Johnson & Johnson (JNJ)
• Merck & Company (MRK)
• Pfizer (PFE).
All are well known and need no introduction. However, unlike the other
picks, the pharmas all pay substantial dividends equating to yields
(next 12-months expected payouts divided by share price) ranging from
3.0% for Johnson & Johnson to 4.1% for Pfizer.
Consider the stocks turned up by these screens as candidates worthy of
further research, not a buy list. The more you know about your stocks,
the better your results.
published 3/28/10 |
