Today is Monday, May 12, 2008


Health care ETFs have underperformed expectations

Exchange traded funds (ETF) that invest in health care stocks are down 11% from a year ago. That’s not as bad as financials, which are down as much as 28%, but it is not as good as the financial advisers who put clients into health care stocks expected, according to Gary Gordon at ETFExpert.

While Gordon offers some good reasons for the disappointing performances of health care ETFs, I have my own.

First, as I’ve noted here and here, health care providers may not as protected from recessions as they once were because of higher deductibles and copays.

Also, ETFs, like mutual funds, often buy the bad with the good. They have to because they are index funds that are supposed to reflect the industries they track. Because they have millions to invest, ETFs focus on the bigger, more mature stocks rather than on smaller stocks that may be offering better returns to investors. Similarly, ETFs buy for the very long haul, which is ok if you’re Warren Buffett and have a 50-year time horizon. Most of us want quicker returns and need to be able to trade in and out of stocks as their fortunes and prices wax and wane.

Bottomline, buy eight or 10 stocks that you can track very carefully and trade as needed. If, and this is a big IF, you work at it, you can outperform most ETFs and mutual funds.

For educational purposes only. Investigate on Reuters.com, Yahoo.com, Google.com, Morningstar.com and by searching the web for information before you speculate.

Six fundamentally strong stocks with bullish charts worth considering

There are hundreds of fundamentally strong companies that have bullish charts, including six that I’ve found on my current watch list of 31 stocks. Charts for the watch list are here.

Actually, there are more than six stocks with bullish charts on my watch list, but I either haven’t fully researched them all or have some reservations about them at the moment.

The stocks I like this week include:

Aflac (AFL)
Natus Medical (BABY)
Caterpillar (CAT)
Covidien (COV)
Given Imaging (GIVN)
Stratasys (SSYS)

Point and figure charts for these stocks are here. All have bullish price objectives, which should be taken with a grain of salt. Click on a chart to get hourly, daily, weekly and point and figure charts for a specific stock.

I’ve blogged on all of these stocks, and you can quickly find them by searching this site at the top of the third column.

Full disclosure: I own SSYS and have an indirect interest in CAT. I do not have positions in any of the other stocks mentioned here.

For educational purposes only. Investigate on Reuters.com, Yahoo.com, Google.com, Morningstar.com and by searching the web for information before you speculate.

SBUX: Just because some analysts like Starbucks doesn’t mean it’s time to buy

Too many buy-and-hold investors and bottom fishers just can’t and won’t let go of the maket’s fallen heroes like Starbucks (SBUX). Instead of moving on to new market leaders, investors try to do the impossible. They try to pick the bottoms when their stocks plunge—as SBUX has over the last year.

And it seems there always are good reasons buy a fallen stock, except that it doesn’t make sense to buy a stock when it’s on sale and the charts suggest that it’s likely to become even cheaper.

Look at Starbucks’ fundamentals, which Reuters offers here. Despite all the happy talk, the news hasn’t been that good for Starbucks.

This week’s rationale for buying SBUX is that the old management has returned and can turn the company around by cutting capital spending, revamping the product line and focusing on emerging markets. The May 19 issue of BusinessWeek quotes an analyst from its sister company, Standard & Poor’s, who rates the stock a strong buy with a one-year price target of $27. And an Oppenheimer analyst rates the stock an outperform.

But this point and figure chart for SBUX suggests the $15.86 stock has a bearish price objective of $3.

Unbelievable?

Well, when SBUX was at its recent high of about $40, who believed that it would sink to below $16? And when Motorola (MOT) was at about $25, who predicted that it would sink below $25? When Advanced Micro Devices (AMD) was at $42, did anyone think it would tumble to $5.50? Many didn’t think these stocks could go so low and bought on the way down only to lose a lot of money.

Only those who cut their losses when they were 8% under water lived to trade another day.

Given the micro and macro economic forces working against it, SBUX is in for a long fight. Buying the stock now could be a big mistake, unless you’re a nimble day or swing trader who has a track record of admitting your mistakes and cutting your losses quickly when you’re wrong.

Bottom fishing is not for the faint of heart. I won’t buy SBUX until the earnings improve and the charts look convincingly encouraging.

This is a patience play. Wait for the company and stock to prove themselves.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

Can Microsoft overtake Yahoo, Google?

Microsoft (MSFT) has a chance to parlay its strengths in technology and display advertising and growing skepticism about the effectiveness of pay-per-click search advertising into long-term wins against Yahoo (YHOO) and Google (GOOG), according to the cover story in the May 19, 2008, BusinessWeek.

Given the huge investments that Microsoft and Yahoo must make in their efforts to take market share from Google, I won’t buy either company’s stock unless one of them shows signs of becoming a Wall Street darling.

At the same time, Google, which is still a relatively hot stock, has yet to prove that it can reinvent itself and turn any of its recent acquisitions into winners. The stock’s so over extended that it’s a toy for day and swing traders, not for long term investors.

Charts for all three companies are here. Of the three stocks, only GOOG has a bullish point and figure chart price objective. Reuters offers data on all three companies here.

Based on the BusinessWeek story and my experiences as a web surfer and pay-per-click advertiser, this is how I see the relative strengths of the three companies:

1. Resources for the technological and marketing wars: Microsoft is stronger than Google, but not much, and both are a lot stronger than Yahoo.
2.  Technology that will make search and advertising work for advertisers: Microsoft beats Google beats Yahoo.
3. Pay-per-click search advertising: Google has a 75% market share and Yahoo is way ahead of Microsoft.
4. Display advertising technology and market share: Yahoo is a bit ahead of Microsoft, and both are way ahead of Google.
5. Traffic on web sites: With 500 million unique visitors a month, Yahoo is ahead of Google, which beats Microsoft.
6. Content: Yahoo beats Google beats Microsoft.

Microsoft is making a major pitch that pay-per-click advertising is way over rated, and as a former advertiser, I’d have to agree. Pay-per-click fraud is still a big problem on Google and Yahoo, I think. But will display advertising be better? I notice the ads and only click on them accidentally.

For small business advertisers, Google is still the best deal. And it’s the only place Mac owners can use their favorite computers instead of their WinTel backups.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

Mini survey: Walgreen beats Wal-Mart, Costco, Krogers but not Medco

A little shoe leather survey yesterday to find out what four drug stores in the Southeast suburbs of Denver charge for a high-priced prescription drug and its generic competitor found Walgreen has the best price for the generic and Costco has the best price on the brand product.

But Medco (MHS), the pharmacy benefit manager that serves beneficiaries of UnitedHealth Group (UNH), beats them all if you’re willing to put up with the hassle of having your doc send your prescription to the PBM and to wait a week for the generic product to be delivered.

Since WAG’s price ($229) was only about 5% higher than Medco’s, I’ll buy at Walgreens. It beat Wal-Mart (WMT)’s price of $250; Costco’s (COST) $248 and King Soopers’ (Kroger, KR) $286. On the brand product, however, COST was low at $268 versus WAG’s $296 and King Soopers’ $321.49. I didn’t get a brand quote from WMT. Need to check with the doc about the generic and change pharmacies.

When consumers have to pay the full cost of a drug out of pocket because of high deductibles, they shop prices.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

Oh, BABY! Wait till you hear about Natus Medical

The baby business is booming for Natus Medical (BABY), which makes health care products “used for the screening, detection, treatment, monitoring and tracking of common medical ailments such as hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and newborn care.”

That the company is relatively small hasn’t kept it from profiting handsomely from serving the parents of infants, and investors are catching on.

This week BABY ranks 99th on the Investor’s Business Daily Top 100 list of fundamentally strong momentum stocks. On Friday, it closed at $20.92, which is near the top of its 52-week range of $13.87 to $21.80.

And no wonder traders are going for BABY. On May 1, it reported its first quarter earnings soared 73% to $2.6 million, or 11 cents per diluted share on a 36% jump in revenues to $36.9 million. The weighted average of shares outstanding was 22,977,000, up a bit from 22,734,000 a year earlier.

Note the relatively high 11% short interest on the stock. That means there are doubters out there, and it means the stock’s recent strength probably has been caused in part by short covering.

Like a lot of momentum stocks, BABY’s already pretty expensive as these key statistics show. The forward PE is 24, the trailing 12 months PE is 44, the not too reliable PEG ratio is a cheap 1.12 and, the price sales ratio is 3.52, according to data on Yahoo.com. The price per share to cash flow is a very high 43.7, according to Morningstar.com, which doesn’t rank the stock.

IBD (investors.com) gives the stock a very high composite rating of 95, which is based on the company’s earnings per share growth rate, profitability, sales growth and buying by institutions.

BABY’s point and figure chart shows a bullish price objective of $30.50.

Thus, BABY is making the most of the baby boom, much as Pediatrix (PDX) is, even if that baby boom may be slowing.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

WU leads 8 Colorado-based companies that make Barron’s 500

Western Union (WU), Greenwood Village, is the top ranked Colorado-based company on the Barron’s 500, ranking 38th with a grade point average of 3.25 out of a possible 4. The Barron’s 500 gives investors another way to evaluate the performances of their stocks and the boards and management teams that run the companies.

Eight Colorado-based companies made the list. They are ranked as follows:

38. Western Union (WU), Greenwood Village, 3.25. Its grade for 52-week total return vs. S&P 500, B; cash flow return on investment, 3-year median, A, ‘06 vs. median, A; sales growth in 2006, C.
116. Liberty Global, Englewood (LBTYA), with a GPA of 2.75. Grades: B,D, B, A.
160. ProLogis (PLD), Denver, 2.50. Grades: C, D, B, A.
176. Liberty Media Interactive (LINTA), Englewood, 2.25 GPA. Grades: F, A, A, D.
201. Ball (BLL), Denver, 2.25. Grades: B, C, D, B.
239. Molson Coors Brewing (TAP), Denver, 2.00. Grades: B, C, C, D.
307. Newmont Mining, Englewood, 1.75. Grades: B, D, F, B.
465. Qwest Communications (Q), Denver, 0.50. Grades: F, F, C, F.

The top five companies were:
1. BlackRock (BLK)
2. Research in Motion (RIMM)
3. National Oilwell Varco (NOV)
4. Schlumberger (SLB)
5. Charles Schwab (SCHW)

McDermott International, which I profiled here, ranked 10th.

Barron’s explains the grading:

The Barron’s 500 is prepared annually by Credit Suisse Holt, a unit of Credit Suisse Group. It compares companies on the basis of one-year sales growth and stock-price performance, three-year cash-flow return on investment, or CFROI, and one-year change in CFROI for the most recent fiscal year. It grades them A through F, using the percentage change in one-year cash flow to break ties and determine rankings.

The Colorado-based stocks’ daily charts are here. Click on a chart for more information. Point and figure charts show that all these stocks but NEM have bullish price objectives.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

Top 50: 6 of Colorado’s largest companies are hot

Six of Colorado’s largest companies are so fundamentally strong in terms of earnings growth and buying by institutional investors that they’ve become hot momentum stocks, according to Investor’s Business Daily (IBD).

Three of the state’s Top 50 made it on to the IBD 100 list, which is available at http://www.investors.com. Whiting Petroleum (WLL), Denver, Colorado’s 27th largest company, is the 48th hottest stock in the market. St. Mary Land & Exploration (SM), Denver, the state’s 19th largest company, is the 60th hottest stock, up from 79th last week. And Cimarex Energy (XEC), Denver, the 16th largest Colorado-based stock, ranks 67th on the IBD 100. Whiting and Cimarex weren’t on the list last week. I posted a review of SM on May 4.

Another Colorado-based energy company, Forest Oil (FST), Denver, and Woodward Governor (WGOV), Fort Collins, made IBD’s list of fundamentally strong stocks that are gaining momentum and are worth “Your Weekly Review.” FST is the 17th largest Colorado-based company and WGOV ranks 12th in the state.

Molson Coors Brewing (TAP), Denver, the state’s fourth largest company, made IBD’s list of “Weekly Stocks on the Move.”

Daily charts for these Colorado-based momentum stocks are here. Click on a chart to see weekly and point and figure charts. The stocks’ point and figure charts all have bullish price objectives.

Full disclosure: I do not have positions in any of the stocks mentioned here.

For educational purposes only. Investigate before you speculate.

PDX: Recession worries may be causing couples to delay having babies; fewer twins?

About a year ago America’s 20 and 30 somethings apparently made a collective decision that having babies was not a good idea what with a recent plunge in stock prices, falling housing prices, talk of a banking crisis and growing worries about the economy.

This means the country may be headed into another birth dearth period unless would be moms and dads suddenly turn more optimistic. Most political polls and consumer sentiment surveys are pretty dour these days. I mean, things have to be pretty tight when gas is over $3.65 and Starbucks (SBUX) is having a tough time selling $5 lattes.

That, at least, is what might be gathered from comments by the chief executive officer of Pediatrix Medical Group (PDX), which said it has seen a slower than average growth rate in births at hospitals where it manages neo native intensive care units. Pediatrix says it manages neo natal intensive care units (NICUs) that serve about 10% of the nation’s NICU patients.

“During the 2008 first quarter we did see a decline in the rate of growth in the number of births at hospitals where we practice,” CEO Roger Medel said in a conference call with securities analysts, Reuters reported. For a company profile, access to news releases and financial information about PDX, the Reuters summary page is here. A transcript of Pediatrix’s conference call is here.

The question for investors: Are other companies serving new parents such as hospital chains, formula and diaper makers, Wal-Mart (WMT), Walgreens (WAG) and Johnson & Johnson (JNJ) seeing similar trends?

The first thought that comes to my mind as the former owner of Twins™ Magazine (twinsmagazine.com) is that fewer twins and other multiples are being born, because multiples are more likely to be born prematurely and admitted to NICUs than singletons. The Center for Disease control reports the distribution of births by gestational age here.

Last month the CDC reported that between 2000 and 2004 the pregnancy rate for women under 25 dropped compared with the rate for 1990. “Nearly 38 percent of pregnancies in 2004 were to women under age 25, down from nearly 43 percent in 1990. The proportion of pregnancies among teens under age 20 dropped from 15 percent in 1990 to 12 percent in 2004,” the report said.

Full disclosure: I have no interest in PDX or the other stocks mentioned here.

For educational purposes only. Investigate before you speculate.

LBTYA: Liberty Global reports bigger than expected loss

Liberty Global, Inc., (LBTYA), reported a bigger than expected loss for the first quarter, the Denver Post reports. At the moment, the stock is down 3.4% on the news to $35.11. Yahoo’s summary page is here. Reuters’ s here.

Liberty Global is the 29th largest Colorado-based company.

Liberty Global’s news release is here. Since the news release is a horrible example of how to use jargon and a bunch of operating statistics to cover up losses, it’s probably best to quote key graphs from the Post:

Englewood — Liberty Global Inc. said its first-quarter loss widened on higher interest payments and losses on derivatives.
The Englewood-based company’s loss reached $155.6 million, or 45 cents per share, compared with a loss of $136.1 million, or 35 cents per share, in the year-ago quarter.
Analysts polled by Thomson Financial expected a loss of 7 cents per share.
Liberty says revenue rose to $2.61 billion from $2.11 billion when it released results after the market closed Wednesday.
Analysts forecast $2.56 billion in revenue.
The gains come as Liberty expanded its customer base 7 percent the past year with faster growth in broadban

Reuters reports that Liberty Global’s valuation ratios are lower than those of its industry and sector peers. It’s stock is trading for 1.33 times sales, compared with 1.89 for its industry, 2.55 for its sector and 2.61 times for the S&P 500. It is trading for 5.19 times cash flow compared with 8.54 for its industry and 13.93 times for the S&P 500.

These lower valuations not only reflect the company’s poorer performance but also the market’s less hopeful outlook for the company compared with its industry and sector peers.  LBTYA’s sales are growing faster than those of it’s peers, but its losses have been growing while its peers’ profits have been growing. Profoundly speaking, investors like profits more than losses.

Full disclosure: I have no interest in LBTYA.

For educational purposes only. Investigate before you speculate.

CROX: Is Crocs the new Starbucks or the old Arby’s?

Is Crocs (CROX) the new Starbucks (SBUX), a producer of a forgotten luxury item that can be done without, or is it the new Arby’s, another commodity producer that must fight for attention in a very price competitive market? Crocs’ first quarter earnings call transcript is here.

At this point, Crox is a mixed picture, reporting sharply lower earnings despite still booming sales. While it’s promising to make a nice profit in 2008, its 15% to 20% sales growth projections for the full year are sharply below the almost 40% sales growth reported for the first quarter. In this economy, disappointments are more likely than nice surprises. Slowing growth hurts a stock’s price. At the moment, CROX closed Thursday at $11.40, up 14.46% in response to what traders consider a rosy forecast.

After reporting a loss of 5 cents a share, down from 31 cents a year earlier, Crocs showed its optimism by predicting that it will grow its business this year and earn between $1.54 and $1.64 a share. Earnings from continuing operations were 9 cents a share, but who knows what kind of non-recurring items will be reported for future quarters? Similar skepticism has been expressed here. Reuters’ summary page offers access to Crocs’ press releases and full reports on its earnings here. Crocs is the ninth largest company based in Colorado.

What this may mean is that while the Crocs fad has popped in America, it’s just beginning to bloom in other parts of the world. How long the Crocs fad will last in Europe and Asia is beyond my crystal ball.

But in the U.S., as expected, Crocs is facing knock offs by Lands End, a subsidiary of Sears Holding (SHLD), and other manufacturers. Their versions of Crocs’ expensive flip flops are prominently displayed almost everywhere you shop.

Why Crocs looks like a new Starbucks is that its shoes cost more than its competitors’ knockoffs, just as Starbucks is charging more than McDonald’s does for coffee. And Crocs’ shoes are much less sensually distinctive than a Starbucks, which means it’s much more vulnerable to fashion changes than the coffee chain. Both Crocs and Starbucks are losing sales to soaring gasoline prices and inflating food prices as well as to a sour mood about just everything and everyone who walks in this country. It’s hard to buy fun stuff when the cost of commuting and eating is making you feel poor, even if you’re not.

Certainly the owners of CROX stock are feeling poor if they’ve owned it very long. Despite Thursday’s price spike, CROX at this writing is still down about 2.45% for the week, 48% for the last month, 73% year to date and 71% for the last 12 months.

And based on analysts’ earnings projections for the next five years, which have to be taken with a huge grain of salt, the stock looks extremely cheap. The PEG ratio, which is the price earnings ratio divided by the five-year projected growth rate, is only 0.25. Most under valued companies trade at PEG ratios of 0.7 or so. The average PEG ratio for the 47 largest Colorado-based companies is 1.47, according to Morningstar.com data.

Historically, CROX has been a terrific performer, according to the ratios shown by Reuters. It’s trailing 12 months return on assets was a spectacular 26.8%, and its return on equity was a tremendous 51.6%. For the top 47 Colorado stocks, the average return on assets was a miserable 4.1%, and the average return on equity was a mediocre 9.4%, according to Morningstar.

Don’t be surprised if Crocs’ profitability over the long term comes back to earth, which is otherwise known as the mean.

Here is the impact graph in the Crocs news release:

Revenues for the quarter ended March 31, 2008 increased 39.8% to $198.5 million compared to $142.0 million for the quarter ended March 31, 2007. For the quarter ended March 31, 2008 domestic sales rose approximately 11.7% to $92.6 million compared to $83.0 million for the same period a year ago, and international sales increased 79.5% to $105.9 million from $59.0 million for the quarter ended March 31, 2007. The Company reported a net loss of $4.5 million, or ($0.05) per share, compared to net income of $24.9 million, or $0.31 per diluted share for the quarter ended March 31, 2007. On a Non-GAAP basis, excluding a portion of the $12.1 million after-tax charge associated with the shutdown of the Company’s Canadian manufacturing operations, the Company reported net income of $7.6 million, or $0.09 per diluted share in the first quarter of 2008. Net loss per share and net income per diluted share and for the quarters ended March 31, 2008 and 2007 are adjusted to reflect the two-for-one stock split that took effect in June 2007. Gross profit for the first quarter of 2008 was $84.2 million, or 42.4% of revenues, compared to $84.5million, or 59.5% of revenues for the first quarter of 2007. Selling, general and administrative expenses for the quarter ended March 31, 2007 were $77.0 million, or 38.8% of revenues, compared to $47.3 million, or 33.3% of revenues in the quarter ended March 31, 2007.

Full disclosure: I have no interest CROX or SBUX.

For educational purposes only. Investigate before you speculate.

Colorado Top 50 companies heavy in manufacturing, energy, light on information, software

The 47 largest Colorado-based companies are heavy in manufacturing and services sectors compared with the S&P 500, according to data on Morningstar.com. These stocks are among the 50-largest publicly-owned companies based in Colorado. Three of the Top 50 companies have been or are being acquired and no longer are or will be Colorado-based.

A total of 46.63% of the 47 largest companies are in the manufacturing sector, compared with 38.51% of the S&P 500. Manufacturing includes 9.56% of the 47 that are in consumer goods, compared with 9.10% in the S&P 500; industrial materials, 10.86% vs. 12.93%; energy, 26.22% vs. 12.94% and no utilities, compared with 3.54%.

Service sector companies account for 43.04% of the top 47, compared with 40.62% in the S&P; healthcare, 5.07% vs. 11.98%; consumer services, 17.63% vs.  6.84%; business services, 6.8% vs. 4.37%; financial services, 13.54% vs. 17.43%.

Information sector companies account for 10.33% of the 47 companies, compared with 20.87% for the S&P 500; software, 0.86% vs. 4.14%; hardware, 0.28% vs. 10.20%; media, 7.3% vs. 2.9%; and telecommunications, 1.9% vs. 3.63%.

Another way to look at the top 47 is by type of stock, according to Morningstar.com. Of the Colorado-based companies, 40.51% are hard asset companies, compared with 14% for the S&P 500, and 1.3% are distressed, compared with 0.58% of the S&P 500. And 18.97% of the stocks are aggressive growth stocks, compared with 14.11% in the S&P 500.

Perhaps the best news for Colorado in a slowing economy is that only 3.8% of the companies based here are cyclical, compared with 18.8% of companies in the S&P 500, according to Morningstar.com’s data.

The 47 companies’ average price earnings ratio based on predicted earnings, which often are inflated this time of year, is 16.1, or 1.12 times the same PEs for the S&P 500. Colorado, of course, is home to a lot of hot energy and gold mining companies, which have been hot in the stock market for years now.

But because so many Colorado-based companies are hard asset businesses, their capital costs are high, and their returns on assets average only 4.09% or only 48% of the returns of S&P 500 companies. Similarly, the average return on equity for the 47 stocks is 9.34%, or 42% of the average for the big S&P 500 companies.

Full disclosure: I have no interest in Morningstar.com. I’m just a subscriber who finds the site and its data useful.

For educational purposes only. Investigate before you speculate.

MDTH: Medcath’s portfolio moves make analysis difficult; watch the stock

Medcath (MDTH), a pure play specialty hospital company that focuses on cardiac surgery, put out a second quarter earnings report that will leave most investors baffled because the company has had so many non recurring events in the last 12 months that it’s hard to see whether the company is growing or shrinking.

All you can do is watch the stock.

And Medcath’s chart tells the story. After the company announced preliminary secondary results on April 21, the stock plunged some 20%, and the stock dropped 2.75% immediately after the company’s final earnings report was released on May 6 for the three months and six months ended March 31.  Click on the chart here to see hourly, daily, weekly and point and figure charts.

To get an idea of Medcath’s complexity, read its press releases here. Yahoo’s summary page for the stock is here. Google’s is here. Reuters’ profile is here.

The bottom line for Medcath is that it has juggled its portfolio of hospitals and partnerships with physicians who own stakes in those hospitals in an effort to position itself for improved profitability and growth over the long term.

Hospital companies have been buying and selling hospitals for more than 40 years, but that hasn’t made them much more profitable than airlines or old line department store chains.

Because of the constant portfolio juggling, it’s hard to buy the argument that investors should focus on continuing operations or on the same facility results, which usually are stronger than the net income reported for continuing and discontinued operations. In an industry where portfolio adjustments are routine, investors have to look at total income trends over the last three and five years to get a feel for the effectiveness of a company’s board and management.

Here’s the market’s take on Medcath, which is reflected in its stock price: In the last week, the stock’s total return, according to data on Morningstar.com, is down 2.12%; in the last month, down 13.2%; in the last 12 months, down 40.6%; in the last three years, down 11.9% and year to date, down 24.7%. Not pretty.

In the three months ended March 31, Medcath earnings fell 9% to $5.7 million. Earnings per share fell 3% to 29 cents per share while diluted earnings per share on continuing operations rose 36.4% to 30 cents.  The weighted average number of diluted shares outstanding fell 7.8% to 19,962,000 from a year ago.

That the company is buying back shares shows it doesn’t see many opportunities to build or buy additional hospitals. The company is adding capacity to its existing facilities, and its capital expenditures in the second quarter rose to $13.1 million from $6.6 million a year ago. Medcath has seven specialty hospitals down from eight a year ago, and it has 433 staffed and available beds, down from 512 a year ago.

The company’s average length of stay for patients rose in the second quarter to 3.7 days from 3.44 a year ago, and its average occupancy remained steady at a pretty good 73.7% of available and staffed beds.

For the six months, ended March 31, Medcath’s diluted earnings per share from continuing operations rose 105% to 41 cents while net revenues rose to $305 million. The weighted average number of shares outstanding in the six months fell 2.7%.

The question for investors is, will Medcath’s earnings from continuing operations and the company’s current facilities continue to grow as fast as reflected in its second quarter report, or will there be new portfolio adjustments that will continue to make the market for MDTH shares bearish? The history of the hospital industry teaches us to look for more portfolio adjustments.

Full disclosure. I have no positions in Medcath.

For educational purposes only. Investigate before you speculate.

Three value stocks are on the move, but check out the fundamentals

When I find stocks that are technically strong and on the move, I always check out their fundamentals by looking at reports published by securities analysts who are independent of Wall Street’s brokerage firms. And, when I get a chance, I also consider the ratings posted by Wall Street’s sell-side analysts. Also, when I find stocks that are fundamentally strong and highly recommended, I check their charts, because I don’t want to buy them while they are on the way down, as many are despite favorable recommendations by analysts.

Three stocks that are very under valued, according to Morningstar.com, which gives them its highest ratings of 5 stars, include:

1. Covidien (COV), a surgical equipment and supplies manufacturer in the midst of a turnaround after being spun off by Tyco (TY). I’ve written about COV here. S&P’s upgrade today of COV to a buy from a hold is reported here.

2. E-BAY (EBAY), which is trying to recover from a slump in the retail sector and from general disillusionment among some investors and sellers on the famous Internet auction site. I’ve written about E-Bay here and here.

3. Given Imaging, (GIVN), which is developing a new wireless imaging system that allows patients to avoid colonoscopies by swallowing a pill-sized device. See this Reuters profile. This is a highly speculative stock, as I’ve posted here.

Click on these charts to see hourly, daily, weekly and point and figure charts.

Here is the thing about each of these companies. Their financial numbers aren’t as impressive as their ratings by Morningstar.

Covidien is trading at 84% of the $58 estimated fair value Morningstar gives it. But it lost money last year, which means its PEG ratio (PE/5-year projected growth rate) is a very high and expensive 3.49. Other valuation figures look better. The company’s stock is trading for a reasonable 10.9 time cash flow and 2.27 times sales.

E-BAY is trading at 70% of its estimated fair value of $44. But its earnings per share were down 68.35% in the last 12 months and 24% in the last year, according to Morningstar.com data. Yet, it’s PEG ratio is a very cheap 0.82, which can mean it’s a buy or that investors aren’t very optimistic about the company’s outlook.

GIven is trading at 67% of its Morningstar fair value estimate of $25, and it’s been stuck there for awhile.  Its PEG ratio is a cheap 0.90, but it’s selling for a very expensive 47.39 times cash flow, compared with 10.9 times for COV and 14.9 times for EBAY.  GIVN is trading for a moderately expensive 4.78 times sales, compared with 2.27 for COV and 5.21 times for EBAY.

So the question traders have to ask is: What’s more important, momentum and Morningstar’s high rating or some quirky fundamentals that companies are trying to correct? And do the two turnaround stocks, COV and EBAY, and the speculative stock that’s waiting for a major decision by the Food and Drug Administration, GIVN, look like good bets, or not?

How traders and investors will decide depends on their degrees of risk aversion and their individual trading plans and rules.

Full disclosure. I have no positions in any of these stocks.

For educational purposes only. Investigate before you speculate.

THC: Tenet Healthcare shows how hard it is to recover from scandal

Tenet Healthcare (THC), one of the nation’s largest hospital chains, showed in its first quarter report how hard it is to recover from years of financial scandals. It has put the scandals behind it, legally, but the financial consequences continue to trouble the company, which reported a first quarter loss of $31 million, or 6 cents a share, compared with a year-earlier profit of $75 million, or 16 cents a share. Both years’ earnings reflect non-recurring gains and losses. Operating revenues rose 7% to $2.37 billion, and the company noted that one hopeful sign is a 1% gain in admissions in hospitals that have been open for more than a year.

Thus, Tenet, which has been dealing with fraud and abuse charges since 2002, presents a mixed picture with a first quarter loss but rising admissions and promises that its turnaround is working. Its earning release breaks a string of more positive reports from Universal Health Services (UHS), Health Management Associates (HMA) and Lifepoint (LPNT).

Several of the hospital companies are trading well above where they were at the beginning of the year, and some of them are trading a bit lower on Tenet’s news today. Click on any of these charts to see hourly, daily, weekly and point and figure charts.

Full disclosure. I have no positions in THC or the other stocks mentioned.

For educational purposes only. Investigate before you speculate.

Three of Colorado Top 50 are undervalued Morningstar 5* stocks

Morningstar.com gives three of the Rocky Mountain News’ Top 50 stocks 5 of a possible 5 stars, which means they are under valued by more than 30%. The stocks are Dish Network (DISH), Western Union (WU) and CSG Systems (CSGS). Click on the charts to see hourly, daily, weekly and point and figure charts. The average M* rating on the 30 rated stocks is 3.04 stars of a possible 5, and the stocks are trading at an average of 95% of their estimated fair values. Twenty of the 50 are not covered by M* analysts and therefore aren’t rated. Three of the top 50 have been or are being acquired and are not included in these totals.

All of the following data comes from a watch portfolio I’ve setup at Morningstar.com where I have a premium membership, which I’ve had for years.

Year to date, the 47 stocks of the Top 50 that are traded are up 1.95%. Their total returns are down 0.48% over the last week and up 2.85% over the last month, up 14.05% over the last 12 months and 22.69% over the last three years. The three-year total expected return is 11.97% and the average PEG ratio (PE/5-year growth projection) is a fairly high 1.77.

The average earnings per share growth rates over the last year was 26.05% on a 25% revenue growth rate and for the last three years 29.35% on a 24.95% revenue growth rate. The 47 stocks are trading for an average of 1.7 times sales compared with 1.44 times sales over the last five years.

Of the 21 stocks paying dividends, the average yield is 1.08%.

The average return on assets by the 47 traded stocks is only 4.09% while the average return on equity is a so so 9.57%.

Of the Top 50, five get 4 of 5 stars: Forest Oil (FST), Golden Star Resources (GSS), Molson Coors (TAP), National CineMedia (NCMI) and Penford (PENX).

Eighteen stocks get 3 stars, which means they’re fairly valued. Two get two stars, which means they’re over valued. Two get one star, which means they’re very over-valued.

If an investor purchased 10 shares of each of the top 50, it would cost $14,521.865 plus commissions of about $9 per trade, or $423.

Full disclosure. I have no positions in WMT or the other stocks mentioned.

For educational purposes only. Investigate before you speculate.

WMT: Wal-Mart puts pressure on drug stores, PBMs with expanded $4 prescription drugs list

Wal-Mart (WMT) knows how to knock the stuffings out of its competitors’ stock prices and make its customers happier.

When it announced its $4 prescription drug program a couple of years ago, the stock prices for Walgreens (WAG), CVS Caremark (CVS) and other drug store chains and pharmacy benefit managers such as Medco (MHS) took a tumble. All of Wal-Mart’s pharmacy competitors met its $4 deal, and they won’t be able to avoid to continue meeting its prices on the expanded list of low priced generics drugs that Wal-Mart announced today.

Somehow almost all of the drug store chains and PBMS have managed to grow their profits despite the generics drugs price war. This price war also will continue to help the makers of generic drugs while putting new price pressures on the big pharma makers of patented prescription drugs.

Wal-Mart said it is expanding its $4 prescription drug program and is specifically targeting the mail order pharmacy benefit managers that health insurers use to reduce their drug costs. The new phase three of Wal-Mart’s program “. . .now covers a 90-day prescription for $10, additional women’s health medications and a new $4 over-the-counter (OTC) offer. The 90-day option gives more choices to customers and physicians who may have been limited to mail order prescriptions in the past.”

Of course, as it always is with Wal-Mart, the big winners are the consumers.

Some of WMT’s close drug store and PBM competitors include Wallgreens (WAG), CVS Caremark (CVS), Express Scripts (ESRX), Long Drugs (LDG), Medco (MHS), Drugstore.com (DSCM) and Rite Aid (RAD). Daily charts are here. Click on a chart to see weekly and point and figure (PnF) charts.

Full disclosure. I have no positions in WMT or the other stocks mentioned.

For educational purposes only. Investigate before you speculate.

What do the new business gurus tell us about investing?

Thomas H. Davenport has used content analysis to develop a new list of the top business gurus, wsj.com reports.

It would be interesting to see a similar list developed for the top economic and investing gurus, but there probably are a few securities analysts and portfolio managers who study the business gurus and use what they’ve learned to psych out the people who run publicly-owned companies and entrepreneurs seeking venture capital. And certainly there are people who’ve drawn on the ideas of the business gurus as they’ve sought better ways to manage their mutual funds, hedge funds and other large institutional investment organizations.

Davenport, a management professor at Babson College, “compiled the ranking, employing the same methodology he used in a 2003 book, “What’s the Big Idea?” Several well-known business gurus fell lower in the updated list, including Michael Porter and Tom Peters, who topped the 2003 ranking and dropped to Nos. 14 and 18, respectively.”

The new top five:

1. Gary Hamel, author, The Future of Management.
2. Thomas L. Friedman, NYT columnist, author, Hot, Flat and Crowded.
3. Bill Gates, chairman, Microsoft.
4. Malcom Gladwell, author, Blink.
5. Howard Gardner, editor, Responsibility at Work.

Note to self: Google them. Read reviews of their books at Amazon.com and BarnsandNoble.com. Buy their books and Davenport’s. I have books by Porter, Friedman, Gates and Gladwell. Time to look at them again and read them as an investor rather than as a manager, entrepreneur and business owner.

SM: St. Mary Land & Exploration’s strong fundamentals are attracting buyers

St. Mary Land & Exploration (SM), a Denver-based oil and natural gas exploration company, looks like a buy to a lot of investors even though some analysts have a hold on the stock after its 21.87% gain since the first of the year..

It is ranked 79th on Investor’s Business Daily’s Top 100 list this week, and its accumulation/distribution ranking by IBD is a near perfect A-, which means the stock has been experiencing “heavy buying,” according to the paper. The stock closed Wednesday at $47.

Yahoo.com’s summary page for SM is here, and Google’s page is here.

After St. Mary released its first quarter earnings report, its top executives discussed the results and their outlook for SM and its industry with securities analysts. A transcript of their conference call is here.

The company reported its adjusted net income in the first quarter rose 61.8% to $73.6 million on a 63.9% rise in revenues to $362.1 millon. Diluted earnings per share after adjustments for non-recurring items rose 62% to $1.15 per share, while the average number of shares outstanding fell 1.3% to 64.1 million shares from 64.9 million a year ago. In the first quarter, SM’s operating margin improved 26% and its income from operations jumped 139.9%. SM’s average realized sales price of oil, net of hedging, rose 45% to $76.23 per barrel from a year earlier while its average on gas per million cubic feet rose 8% to $8.69, according to its first quarter report. Its oil production fell 4% from a year earlier while its gas production rose 19%.

SM’s key statistics include a relatively cheap PEG ratio (EPS/5-year projected growth rate) of 1.17, a trailing 12 months price earnings ratio of 15.4 and a forward PE for the fiscal year ending Dec. 31, 09 of 11.7. The stock is selling for 2.8 times sales and 3.1 times book. As a highly capital intensive business, SM has a moderately low return on assets of 10.2% and a decent return on equity of 23.6%. Insiders hold 12.5% of the stock, which shows management has strong financial incentives to perform. Institutions hold only 5.8% of the shares outstanding. SM’s forward annual dividend yield is 0.2%.

Even though SM is technically strong, it has had a strong run and most independent analysts are ranking it a neutral or hold, while brokerage firms’ analysts surveyed by Jaywalk call it a weak buy. Morningstar.com figures the stock is above its estimated fair value of $41 and two out of a possible five stars.  IBD gives SM it’s highest possible composite rating of 99, which means that the company’s stock market momentum and fundamentals put it ahead of 99% of all publicly-traded stocks in the U.S. SM’s earnings per share (EPS) growth rank is a 95 and its relative strength in the markets is a 93. Its industry (petroleum) rank is an A+, while its sales and profitability rank is an A. It can’t get much better for a stock at IBD (investors.com).

SM’s daily chart, which shows it’s breaking out to the upside, is here. It’s weekly chart, which shows the stock already has had a good run from early this year and has broken through critical resistance, is here. The monthly chart also is breaking out. The point and figure (PnF) chart is here. The PnF chart also is showing a breakout and a bullish price objective of $49. This is basically confirmed by SM November 40 calls, which show speculators expect the stock to touch $49 before the options expire. The bearish November 40 puts suggest the stock could correct to about $38 while the November 35 puts suggest the stock could go as low as $36. No SM long-term options, or Leaps, are trading.

St. Mary is Colorado’s strongest stock, according to its IBD ranking. It is the state’s 19th largest company with 2007 evenues of $990.1 million and total assets of $2.6 billion, according to the Rocky Mountain News.

Full disclosure: I don’t own SM, but I reserve the right to trade at any time.

For educational purposes only. Investigate before you speculate. Look up the stocks I write about on Google.com, Yahoo.com, MSN.com and other financial sites. Many online brokers offer independent reports on stocks.

Seven of top 50 Colorado-based companies’ stocks are attracting buyers

Who are you going to believe, a stock’s charts or the fair value estimates that independent research firms and Wall Street brokers give the stock?

The short answer is that if the charts and fair value estimates don’t agree that a stock is a buy, wait for its price to correct to a more attractive level. But beware. Fair value estimates often are all over the place, and investors have to decide which research firm or analyst is the most credible or is taking the best approach to modeling a stock’s fair value and target prices.

Based on my subjective chart readings, seven of Colorado’s top 50 stocks as ranked by the Rocky Mountain News have bullish daily, weekly and point and figure charts. Charts for the seven strongest stocks are here. The point and figure price objectives for the seven stocks look very attractive. Such price objectives are calculated based on a stock’s recent price performance and should be used as important indicators, but don’t count on their being 100% accurate. When stocks correct and their price trends change, their point and figure price objectives also change. During the current rally, many stocks have seen their point and figure price objectives go bullish from bearish. It also should be noted that academics have proved that technical analysis is not reliable, but I and a lot of traders use both technical analysis and fundamental analysis when we look for stocks to buy and sell.

The seven stocks include Ball (BLL), the state’s eighth largest company, which has a 3 star ranking by Morningstar.com. This means the independent securities research firm considers the stock fairly valued. A 1* rating means a stock is over valued, and a 5* rating means it’s under valued by some 30% and may be a good investment, barring unexpected events that might change the outlook. Two other technically strong stocks are considered fairly valued, which means analysts don’t think they have a lot of price appreciation potential over the next year or so. Janus (JNS) and Time Warner Telecom (TWTC) are considered fairly valued by Morningstar, which gives them 3 stars. IHS (IHS) has a 1* ranking and is considered over valued by Morningstar.

Morningstar follows about 2,000 of the largest and most widely held stocks. While technically strong, Ciber (CBR), Vail Resorts (MTN) MarkWest Energy (MWE) are too small or don’t have enough shareholders to be rated by Morningstar. This makes it harder to evaluate their fundamentals.

A trader has to decide whether to go with Morningstar’s fundamental analysis and wait for a price correction when it says a stock is fairly or over valued or decide to bet the daily, weekly and point and figure charts are good indicators and make buying decisions based on the charts regardless of the fair value estimates. As I’ve noted in my writeups of various stocks, other research services often have quite different opinions of stocks than Morningstar does. Each trader has to have a trading discipline and follow it.

Full disclosure: I don’t own any of these stocks but reserve the right to trade at any time.
For educational purposes only. Investigate before you speculate. Look up the stocks on this site, on Google.com, Yahoo.com, MSN.com and other financial sites. Many online brokers offer independent reports on stocks.

Seveal bullish stocks worth considering

Here are the bullish and bearish chart readings for the week.

Bullish:  AFL, CAT, COV, EBAY, GIVN, JNJ, MTN, MDR, SSYS (I own this.), STJ (I own leaps), UHS. Search this site for stocks by stock symbols to see my reports. Search Google and Yahoo to see detailed fundamental data on each company plus access to news releases, conference calls and news reports.

Bearish: AIRM, HWAY, PEP, UNH.

In addition, Intuitive Surgical, which I’ve blogged on here, here and here, ranks 46th this week on Investor’s Business Daily’s list of the top 100 stocks.

Charts for these stocks and others I’ve recently blogged on are here.

For educational purposes only. Investigate fundamentals before you speculate. Look up the stocks I write about on this site, on Google.com, Yahoo.com, MSN.com and other financial sites. Many online brokers offer independent reports on stocks.

McCain’s health care ‘plan’ supported by Washington Times

Without acknowledging that it would be dead on arrival in a congress controlled by Democrats, the Washington Times supports John McCain’s “plan” to make the health care markets more competitive and less regulated.

MGLN: Magellan Health reports lower Q1 net income

Magellan Health Services, MGLN, a speciatly health care management company, reported an 17.9% drop in earnings in the three months ended March 31 to $17.2 million from $$21 million a year ago. Earnings per share fell 18.8% to 55 cents. The weighted number of shares outstanding on March 31 rose 2.7% to 40.3 million from 39.3 million a year ago. Net revenue rose 34% to $650.3 million. The news release is here. Yahoo’s data on the stock is here. Google’s is here. The company lowered its guidance for net income for 2008:

CAH: CardinalHealth 3Q earnings per share up 13%

CardinalHealth (CAH) reported a 13% increase in non GAAP diluted earnings per share from continuing operations on a 5% increase in revenues from the third quarter of its fiscal 2007 year. It reported 360.2 millon diluted shares, down 8.7% from 394.6 million a year ago. The news release is here. The transcript of the company’s conference call with analysts is here. Yahoo data is here. Google data is here.

From the press release:

How universal health care kills people in Sweden

Note to self. Point this one out when universal health care in other countries comes up. Sweden is no paradise.

CVS: Record Q1 for CVS Caremark

CVS Caremark (CVS) announced record earnings and sales as a result of its acquisition last year of the pharmacy benefit management company, Caremark. News release is here. Google’s CVS page is here. Yahoo’s is here. Seeking Alpha has a transcript of the company’s conference call here.

McCain’s Cleveland speech on health care

Sen. John McCain’s speech on health care, which was delivered at the Cleveland Clinic today, is here.

He promises:

LPNT: Lifepoint Q1 Earnings up 2.8% on 5.8% rise in revenues

Lifepoint Hospitals Inc. (LPNT), joined Universal Health Services (UHS) and Health Management Associates (HMA) in reporting higher first quarter earnings. News release is here. Community Health Systems (CYH) reported lower earnings a couple of days ago. Tenet Health Care (THC) reports May 6.

Lifepoint said that in the first quarter, its earnings from continuing operations rose 2.4% to $39.7 million, or 72 cents per diluted share, from $38.8 million, or 63 cents per diluted share a year earlier. Revenues from continuing operations rose 5.8% to $699.9 million. Total net income rose 40.1% to $41.8 million, or 76 cents per diluted share. The diluted weighted average shares and equivalents outstanding for the three months ended March 31 were 55.2 million, down 2.8% from 56.8 million a year ago.

William F. Carpenter III, president and chief executive officer of LifePoint H, said:

We are pleased with our first quarter results and the strong start to 2008. We are on target to achieve our guidance issued in February for full year 2008 and have raised our EPS guidance to reflect a favorable tax adjustment in the first quarter and the impact of our share repurchase program. We continued to benefit from improving performance at the hospital level, confirmation that our growth and operating strategies are gaining traction. Despite a challenging environment, we look forward to continuing growth and progress in 2008 and beyond as a result of these efforts.

CI: Cigna Q1 earnings plunge 80%

Cigna’s (CI) first quarter earnings report is the worst we’ve seen from health insurers. CNN Money (Dow Jones Newswire) reports here. Bloomberg reports here.

Impact graphs from Bloomberg:

Operating profit on Cigna health plans dropped to $138 million, from $168 million a year earlier. More workers than expected quit their workplace health plans because of the weakened economy, company executives said. Employers are also shifting to less profitable health plans industrywide.

The company reduced its 2008 health-care profit goal by $50 million to a range of $735 million to $775 million. The company is resisting pressure to boost enrollment through price cuts and will benefit from its recent acquisition of Great-West Lifeco Inc.’s health-plan unit, said Chief Financial Officer Michael Bell on a conference call with analysts today.

``We expect health-care earnings to improve significantly over the balance of the year,’’ Bell said.

Analysts and investors view changes in the share of premium revenue spent on medical care as an indicator of future industry profitability. Cigna’s ratio was 83.8 percent in the first quarter, compared with 83.3 percent a year earlier and 84.6 percent in the fourth quarter of 2007.

Gradually updating Colorado Top 50 data

Technical readings on 32 of 47 stocks that the Rocky Mountain News recently listed as among the top 50 stocks based in Colorado have been posted here. In addition to my very subjective technical readings, I’ve reported the rankings that Morningstar.com has given to the stocks. Morningstar doesn’t rank all of Colorado’s top 50. And the top 50 really are 47 because one company has filed for bankruptcy and two have been or are in the process of being acquired. I also listed data for a couple of smaller companies because their charts looked pretty good. This is my way of learning about Colorado-based companies and the Colorado economy as well as one way I look for investment opportunities.

UPDATE: 5.1.08. As of this morning, these stocks have bullish charts and are worth further investigation. Not ready to buy yet. It only takes 10 stocks to have a diversified portfolio. All but one, SPNC, have bullish point and figure chart price objectives. PnF price objectives should be used as fairly credible guides, but they’re certainly no sure things. So far, I’ve put about 20 hours into my little Colorado stocks project.

Full disclosure: I don’t own any of these stocks, but I’m considering some that are fundamentally strong and have strong technicals as possible investments.

For educational purposes only. Investigate before you speculate. Click on the stocks’ symbols to access a wealth of data at http://www.finance.yahoo.com. Or search the web for a stock’s symbol. There is a lot of information out there.

Are more than 50% of hospitals insolvent or on the verge of insolvency?

Turnaround specialists Alvarez & Marshal Healthcare Industry Group is getting a lot of mileage out of a report that it has published that more than half of 4,500 hospitals are “technically insolvent or at risk of insolvency.” The firm asks, “What happens if financially troubled hospitals can no longer count on subsidies, philanthropy and government bailouts to survive?”

As if those subsidies, philanthropy and government bailouts are at risk. I don’t think so. Local politicians will protect their hospitals’ no matter what. Yes, rural and metropolitan hospitals have been allowed to close when they were obviously unneeded. bit few of today’s hospitals are unneeded, because one little epidemic could fill them in hours. That often happens during big flare ups of the flu, which hit hospitals earlier this year. Philanthropy already is non existent at most small hospitals, and the rich won’t quit giving unless their taxes are raised out of sight. And even then, if taxes are increased, there will be more incentives to give to hospitals. As for bail outs, politicians are falling over each other to bail out home builders and will do the same if a lot of hospitals suddenly become financially insolvent. Look at how hard Congress is working to restore the Medicare cuts in payments to physicians, which are scheduled for July 1. Sure, they’re talking about taking some of that money out of the hides of hospitals, but don’t count on it. Hospitals have lobbyists, too. Good ones.

Read the whole report, skeptically.

MHS: Medco share buy backs make EPS rise while net income falls

Medco Health Solutions (MHS) used $1 billion in first quarter share buy backs to make its first quarter earnings per share rise while its net income fell 1.7% to $270.2 million from $274.8 million a year ago. While Medco’s first quarter GAAP diluted EPS growth was up only 6.4% on a 16.2% increase in net revenues to a new record, the company reaffirmed its guidance for a 27% to 29% jump in 2008 GAAP diluted earnings per share.

On March 31, MHS had 537.8 million shares outstanding (weighted average), down 7.6% from 582.3 million a year earlier. In its News release, Medco said:

In conjunction with its $5.5 billion share repurchase program, Medco repurchased 21 million shares at a cost of $1 billion during the first quarter, representing an average per-share cost of $47.55. From the inception of the share repurchase program in 2005 through the end of the first quarter of 2008, Medco has repurchased 132.4 million shares at a total cost of $4.5 billion, with an average per-share cost of $34.10.

Such share repurchase programs are seen by investors as indications that companies don’t see great new business opportunities where they can put their money. Long term, this can be bearish for a company. However, speculators like share repurchase programs, which reduce the supply of a company’s stock and make valuation ratios based on shares outstanding look more attractive.

Note that Medco’s generic dispensing rate rose to 63.3% from 58.2%, which is good news for insurers and bad news for the big pharmaceutical companies. It all could be bad news for the retail drug store chains.

Medco’s closest competitors include CVS, ESRX, WAG, LDC, DSCM, RAD and WMT. Their daily charts are here. Point and figure charts are here.

The MHS PnF chart has a bullish price objective of $73 while it’s trading at $49.69. CVS and ESRX also have bullish price objectives while the drug chains have bearish ones.

Full disclosure. I have no positions in MHS or the other stocks mentioned.
For educational purposes only. Investigate before you speculate.

McCain takes health debates to Democrats; tax credits for the poor?

John McCain is taking the health care insurance debate to the Democrats with a market-oriented approach that offers tax credits as incentives to buy health insurance, but how will that work when half of the working population doesn’t pay income taxes, and the poor have little income to tax? Most of McCain’s health insurance legislation proposals, which are much like those Bush proposed a couple of years ago, make sense. But I don’t see how voters will buy what he’s selling, because his message is muddled and doesn’t have the ring to it that “universal health care” does. McCain’s health care speech is here. 

CYH: Community Health reports 10.1% drop in income from continuing operations

Community Health Systems Inc. (CYH), which operates the most hospitals of any publicly-owned company, reported that its net income from continuing operations fell 10.1% to $51.5 million, or $1.54 per diluted share, on a 136.3% increase in net operating revenues to $2.7 billion. The jump in revenues reflected CYH’s recent acquisition of Triad Hospitals. During the three months ended March 31, CYH had a weighted average of 95 million shares outstanding compared with a weighted average of 94.4 million in the same three months last year. Total net income rose 10.7%. The company sold 11 hospitals during the first quarter.

Same hospital admissions rose 3.8% and adjusted admissions rose 3.8% while same hospital revenues rose 5.7% from a year ago.

McCain expands his health insurance scheme

Sen. John McCain, the presumptive GOP presidential candidate, today announced a new promise to back a nonprofit corporation that would work with the states to provide health insurance to people who have pre-existing conditions and can’t buy regular insurance. Specifically, the idea is to create a nonprofit “. ..corporation that would contract with insurers to cover patients who have been denied insurance and could join with other state plans to enlarge pools and lower overhead costs. There would be reasonable limits on premiums, and assistance would be available for Americans below a certain income level.” Politico.com reports here.

This looks like a welfare program, not an insurance solution. The risks of “insuring” those with pre-existing medical conditions are known. So you get adverse selection with very high and predictable risks. This is about putting money into a pool to pay for known risks, not about putting people into a pool and spreading risks. What re-insurer would be dumb enough to get involved? The only way they’d get involved would be if they were paid for holding the government’s money and administering the claims. Possibly they’d provide disease management services for a nice fee, too. Lots of insurers provide those services. Who recommended this scheme to McCain? It just doesn’t make sense to me.

The question, of course, is, how would such a plan differentiate the chronically ill who’ve never been able to work or buy health insurance from the freeloaders who didn’t want to buy insurance until they became sick and found that their “pre-existing conditions” made it impossible for them to buy insurance?

Helping the chronically ill who never have been able to work or buy insurance makes sense. Giving a gift of thousands of dollars to those who were freeloaders most of their lives and now want taxpayers to reward them for gaming the system until they needed insurance makes no sense at all. For example, there are people who are lucky enough to live into their 50s without needing health insurance, and some of them never buy it. Then they become chronically ill with a condition that will cost a million dollars or more over the rest of their lives, and they want insurers to give them that million dollars after they or taxpayers pay their first monthly insurance premiums.

How much in back premiums should the patient be required to pay before getting insurance? Five years? 20 years? Nothing? Should they be required to put up their homes to cover back premiums, or what? What makes sense, and what’s politically and administratively doable?

Bob Laszewski’s detailed analysis is here. He’s as puzzled by the McCain proposal as I am:

I am frankly amazed he offered this as a “solution.”

First, he is simply shunting the problem off to the states.

Second, he implies that one or more states have figured out what to do with people who can’t get health insurance because of preexisting conditions. Just which state is that? I don’t know of a single state that has been able to provide widely available access to health insurance for people who cannot get it.

Third, just who would finance this pool? States have tried so called high risk pools before. Time and again they are swamped by people trying to get in and there is never enough money. Since they have never worked before, how would they work this time?

At the risk of taking sides here, what I find most frustrating is that I think this problem is solvable for McCain.

Discuss here.

HWAY: Gallup-Healthways Well-Being index: 49% ‘thriving,’ 47% ‘struggling,’ 4% ‘suffering’

Healthways Inc. (HWAY) appears to be getting a lot of brand building attention for its sponsorship of the new Gallup-Healthways Well Being Index following the announcment of initial results of the survey Tuesday. The survey results are getting a lot of press attention (search the web for Healthways, news), and they undoubtedly will help both Gallup and Healthways sell their services. Healthways provides disease management services to employers, health insurers and Medicare, and Gallup conducts health status and employment satisfaction studies for employers and other organizations. Time will tell how long it will take for Healthways to leverage its data into new business and its increased visibility into a higher stock price, but it’s clear the company has a wealth of new information that its sales people will be showing customers and prospects.

Down the road, insurers might use the survey data to assess the medical risks presented by large groups, or employers may use the data to win lower premiums from health and life insurers. The data also could be used by a contractor to prove to a customer or prospect that its workers are relatively happy and healthy. A hedge fund or other large institutional investor could commission studies of companies to identify those with the most productive work forces. Employers and insurers would have to be careful about how they used the data. They wouldn’t want to be accused of discriminating against older or unhealthy workers.

Some 49% of Americans say they are thriving, 47% say they are “struggling” and 4% say they are “suffering,” according to the initial Gallup-Healthways Well Being Index. I recently blogged about the index here and about HWAY here.

“It’s pretty clear from the data provided through

Analysts downgrade CYH, THC, UHC, MDTH, HMA and LPNT; hospital stocks face rough going

The AP reports two analysts have put sells and holds on hospital companies stocks. For many analysts, a hold is nice way to say sell. Impact graphs:

Citi’s Gary Taylor set his lowest rating on shares of Tenet Healthcare Corp. (nyse: THC - news - people ), MedCath Corp. (nasdaq: MDTH - news - people ), Universal Health Services Inc. (nyse: UHS - news - people ), Community Health Systems Inc. (nyse: CYH - news - people ), Health Management Associates Inc. (nyse: HMA - news - people ) and Lifepoint Hospitals Inc. He expects each to lose ground over the next year.

Taylor said economic conditions in the U.S. are making business more difficult for the companies.

Also on Tuesday, Deutsche Bank (nyse: DB - news - people ) analyst Darren Lehrich downgraded Tenet shares to “Hold” from “Buy,” saying the stock is close to a fair price. He raised his price target to $7.25 per share from $6.

Six months of daily charts for the companies are here. Click on the charts for more charts.

Colorado stocks that are buys and sells

Stocks of Colorado-based companies and of some companies with large workforces in the state have weekly charts that look like buys and sells. But chart and technical analysis is an art, not a science, and trends change. I am not saying anything about stocks that trade under $5 per share. Check a stock’s fundamentals at http://www.finance.yahoo.com, where you also can look at weekly and monthly charts and other technical tools. Investigate the fundamentals before you speculate. (click on headline for more)

Unemployment increases the number of uninsured and the number on Medicaid

A new study published by the Kaiser Family Foundation says “A one percent rise in the nation’s unemployment rate is projected to increase the number of uninsured by 1.1 million an result in an additonal 1 million (600,000 children and 400,000 adults) enrolling in Medicaid, increasing state Medicaid spending by $1.4 billion at a time when their tax revenues would fall by 3 to 4 percent.”

I suppose this is another excuse to raise taxes. Read the report skeptically, beginning with the knowledge that the uninsured numbers thrown around by advocates of “universal health care” are wildly inflated.

HUM: Humana turns in strong first quarter; earnings rise 13%; beat estimates

Humana Inc. (HUM), which last month lowered its estimates for 2008, reported a 13% gain in first quarter earnings, beating analysts’ estimates by two cents per share, Bloomberg reports in a very comprehensive story. One reason HUM beat estimates is that its income tax rate fell to 35.3%. HUM closed Monday at $46.38, up 3.34% on the day.

In its earnings announcement, Humana said:

Elections no big deal for health industries; McCain will talk about health care costs this week

Health industry executives have few reasons to worry about the so called health care reforms, or health insurance industry reforms, being proposed by the presidential candidates.

Sen. John McCain, the presumptive GOP presidential nominee, is focusing his attention on heath care cost containment this week, but a report in this morning’s Wall Street Journal shows that he doesn’t understand the problems any better than Senators Clinton and Obama. Americans need regulatory changes (no laws are “reforms") that make health insurance something consumers can use to protect themselves against catastrophic losses and let individuals buy their policies directly from insurers instead of buying policies selected by their employers. And consumers should pay for their primary care and preventive care services out of their pockets, or, at the least, buy unbundled insurance for those services instead of buying bundled insurance that is unaffordable for so many.

The real question is how much could a President McCain do about health insurance costs with a Congress controlled by Democrats, and would he pay much attention to the problem if it were clear that Congress would mark his proposals dead on arrival?

Fortunately, the presidential candidates’ wild and undeliverable promises of comprehensive health insurance reforms and universal health insurance are being questioned by Congressional Democrats as well as by the policy wonks quoted by the wsj.com. No wonder health industry executives aren’t worried about who’s elected in the fall. They apparently have decided it won’t make a difference for them or their stocks. The impact and concluding graphs from wsj.com and some of my comments follow (click on headline):