Author: Bob Freedland
Covestor model: Healthcare
Disclosures: CELG, CNC, HMSY, HSTM, MCK, RMD, SQNM, SXCI, WNI
The month of April was kind to the Healthcare Model.
While I am always glad to take credit for a terrific performance, I am humble enough to realize that it is sometimes better to be lucky than to be smart. And I was fortunate to be holding stocks that performed well during the month in a relatively strong sector. Certainly I work very hard at identifying stocks in the healthcare field that I believe can continue to perform well in the future and have products/services that I believe can produce strong results going forward.
As a physician I have a slight advantage at least in understanding some of the medical terminology and usage of these investments. However, investment strategy remains unchanged–that is the continued search for stocks that can show improving fundamentals with associated price appreciation.
During the latter part of the month I parted ways with my Celgene (CELG) as the stock took a hit after earnings disappointed. It has been my experience that a stock may well lag the market after a disappointing quarter.
Centene (CNC) was cut from the model after the company announced a loss of a significant contract. If you believe in the ‘cockroach theory‘ of investing, you will suspect that other bits of bad news may come out of a company after a significant event. In fact, Centene reported earnings later in the month that missed estimates.
Similarly, another previously strong performer in HMS Holdings (HMSY) was sold when earnings missed expectations. Healthstream (HSTM) missed earnings and was sold, as well.
During the month, new positions were established in generic drug distributor McKesson (MCK), generic manufacturer Par Pharmaceutical (PRX), and ResMed (RMD), the Australian sleep apnea equipment manufacturer. All of these had good earnings behind them and showed technical strength.
Three stocks that helped drive the stock performance in a positive fashion during the month was SXC Health Solutions (SXCI), Sequenom (SQNM) and Schiff (WNI). These three accounted for a good portion of my results in this model during the month of April.
How do I put all of this together? First of all, I would suggest that this portfolio worked well in April due to my own vigilance. The market is unforgiving in earnings missed and even the smallest suggestion of bad news. It is better to cut losses quickly than to hold on for greater pain from my own perspective. However, it pays to have enough holdings to purchase some smaller more speculative holdings as well that may provide some of the opportunity for larger growth.
I am very thankful that this model has done well recently. I shall be continuing to look for more opportunity as stocks present themselves in the future but shall be hard on my own holdings, parting ways with them at evidence of either fundamental, technical, or combined weakness in the future.
Thank you to Covestor for their continued confidence in me as I work to deliver a portfolio that can take advantage of the possibilities of healing and curing the afflictions that we all face, and participate in the management of that healthcare delivery. Robert J. Freedland
