Is the move into health care stocks for real?

Big portfolio managers appear to be positioning themselves for the end of QE2 by rotating into high-yield, slow-growth sectors.

By Jim Cramer Apr 5, 2011 10:33AM

jim cramerthe streetIs the rotation into health care stocks for real? We've had the health care service providers and medical device companies going up for months now, including WellPoint (WLP), Humana (HUM), Allscripts (MDRX) and Cerner (CERN).

 

Few groups have been as strong as the distributors McKesson (MCK) and AmerisourceBergen (ABC). AmerisourceBergen's target was bumped Monday by UBS. Davita's (DVA) price target was upped by Goldman Sachs. St. Jude Medical (STJ) and Edwards Lifesciences (EW) have been incredibly strong stocks. So has device maker C.R. Bard (BCR).

 

Takeover bids for Genzyme (GENZ) and now Cephalon (CEPH) have kept the biotechs percolating.

 

Now it looks like the old-line drug companies -- which I, among other investors, have written off -- may be catching a bid. Pfizer (PFE) helped the cause by selling one of its divisions, Capsugel, to KKR (KKR). (I am sure we will see a big equity offering within 18 months from that one, creating huge profits for KKR. How predictable is that?) Any breakup of Pfizer will be well received. Bristol-Myers (BMY) announced a breakthrough drug last week. Johnson & Johnson (JNJ) will not go down no matter how many recalls it has. And Abbott Laboratories (ABT) looks like it is breaking out on the charts.

Let's say the rotation is for real. As with all rotations, we have to decide whether it is simply catch-up or whether there is something else afoot. I think there's a coalescence of good things happening.

 

First, the Obamacare worries are behind the group. Anything bad that has happened is already in the stocks. Any repeal of any legislation isn't. Second, the group is still well behind the market when it comes to typical multiples. But finally, what may be lurking behind the move is a preparation by big money to move into a safety-oriented sector, anticipating the end of QE2.

 

With commodity inflation stronger -- as opposed to job or housing inflation -- and with job growth picking up, big portfolio managers may already be positioning themselves for the inevitable slowdown that comes from domestic tightening.

 

Given the size of the health care cohort, you know people need to have some weighting. The tendency had been to buy the highest growth non-pharma players. We may be experiencing a rotation within a rotation, with money gravitating toward the higher-yielding, slower-growth companies that are well behind the market.

 

I am not a fan of old-line pharma. I would rather bet on up-and-coming biotech or continue to play the service companies like WellPoint, which is owned by Action Alerts PLUS and is still very cheap even after the move.

But the rotation in undeniable, and the Pfizer sale Monday reminds us of how much fat and how many divisions can be sold in order to boost growth, boost dividends and buy back shares.

 

At the time of publication, Cramer was long WLP.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

  

Related Articles

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

129
129 rated 1
281
281 rated 2
444
444 rated 3
732
732 rated 4
629
629 rated 5
623
623 rated 6
610
610 rated 7
440
440 rated 8
303
303 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.