The S&P 500 has moved back into the plus column for the year, but a shift in the markets leadership is underway. Despite the recent rally, the Energy and Utility sectors have failed to participate.
For the short run, I have expressed may defensive stance on the Energy sector. I still feel that Natural Gas and Energy Services will continue to perform until late February or early March. This is the main reason I highlighted Chesapeake Energy (CHK) in a journal post last week.
The correction among the major integrated oils has to be viewed as a correction in a longer term bull market for the sector. Much of the momentum that has pushed these stocks higher for the past two years is now being re-allocated. Specifically, this reallocation is beginning to benefit Healthcare, Financials, Technology, and the Consumer Staples sector.
The implications for this sector shift should not be underscored. Given the remaining negativity among investors, the positive price action of the above mentioned sectors could carry the market averages to the euphoric levels that I have mentioned for the past few months.
So far, the majority of the gains in the Healthcare sector has been concentrated in Managed Healthcare + 27.15%, and Healthcare Services +26.61%. The laggards in the sector has remained Pharmaceuticals -7.9%, and Healthcare Equipment -1%. This seems to be the place that represents the most value.
We are all aware of the problems facing Merck (MRK) and Pfizer (PFE). The problems among the US pharma's has put a damper on most American based companies. Herein lies a few opportunities. While MRK and PFE may bounce, companies like Johnson & Johnson (JNJ) do not face the same issues.
We are going to add JNJ to the IA portfolio as the stock looks like a good bargain at current levels. Also, JNJ fits the description of both a pharmaceutical company and a healthcare equipment company.
BIRD FLU SOUNDS LIKE "DUCK TAPE"
Now that the news media and the government has scared the heck out of the consumer, the "Bird Flu" scare is beginning to sound as ridiculous as the "Duck Tape" scare a few years ago. Do you remember when the Department of Homeland Security said they recommended that Americans protect themselves from chemical and biological warfare by getting duct tape ?
You need to be careful with the foreign pharmaceuticals since many have run up in price due to the "Bird Flu" scare. I guess "Bird Flu" and "Duck Tape" have something in common since a Duck is a Bird.
Oh, get this one. The person named to replace former FEMA director Michael Brown, is David Paulison,the same guy who gave us the infamous "duct tape" scare a few years ago. It just makes you shake your head, doesn't it.
That aside, stocks that have already had a nice run are:
Gilead Sciences (GILD)- They own the patent for "Tamiflu". Oddly, Defense Secretary Donald Rumsfeld was chairman of Gilead before accepting his present job in 2001. And, former Secretary of State, George Shultz is a director on Gilead's board. Hum....
President Bush is backing a controversial bill called the Pandemic Vaccine and Drug Development Act (S 1873) of 2005. The bill would allow health officials to purchase vaccines a flat rates with no bid. Under the current wording, the government could force citizens to use the vaccine while absolving the company from any responsibility should anyone die or be injured by the drug.
GILD would be fun to trade, but it would not be a long term holding.
Hoffman-LaRoche- They are the producers of Tamiflu.
Glaxo SmithKline (GSK)- looks pretty good here. Once again, the stock has had a nice run, but as money comes pouring out of energy and into healthcare, GSK could run to $60.
