Technical Tuesday: The Stars Are Aligned

by Christopher Rowe, Technical Strategist, The Oxford Club
Stock market graph on a tablet computer

Some think tomorrow's Fed announcement is a "make or break" scenario for markets. Traders are on edge.

But long-term investors are staying cool and are salivating over certain stocks, praying for a sharp correction.

But which stocks should you look at?

One sector has all the stars aligned for near-term strength.

The key is to find strong subsectors within strong major sectors. Right now, healthcare providers are the place to be. Here's why...

We're in the healthcare providers sector's Prime Profit Period.

The Oxford Club's Emerging Trends Strategist, Matthew Carr, researched, analyzed and spent countless hours identifying the strongest time frames of the year for each sector.

Below is just a snippet of Matthew's research comparing the performance of various sectors during their Prime Periods to the performance of the S&P 500 and Dow 30 since the year 2000. (Click on the chart to see a larger version.)

This research is what helped him outperform the stock market by 662% last year.

I promised to blur the other sectors' Prime Profit Periods even though it's just a fraction of the "secret sauce."

But Matthew is hosting a special one-time training event for a very limited number of investors, during which he'll reveal all of the sectors above and a lot more. This exclusive group will learn an incredibly powerful system for beating the market by up to 600% a year, while cutting risk in half. To ensure you receive an announcement from Matthew when the event is ready to launch, click here.

For now, focus on the green area showing that healthcare providers averaged a 9.98% return from the beginning of March to the beginning of June. That's more than triple the return of the major market averages and we are only in the third week of this Prime Profit Period.

I typically focus on sector relative strength before anything else. But sitting next to Matthew while he created his new course, Prime Profit Secrets, has been an eye-opening experience for me.

It's now an added layer to my own investment approach and I highly recommend making it another layer of yours.

Healthcare's Relative Strength

Now let's talk about the sector's relative strength.

To keep it simple I'll focus on the six- and 12-month performance of the nine major S&P sectors. Below you can see that healthcare has taken the lead as the top-performing sector in both time frames.

When top-performing sectors take the lead, they tend to continue to lead the market higher for years. This is because institutions have billions of dollars to invest in sectors and they can't make their investments all at once. If they do, they'll run the prices too high too fast.

In other words, don't hesitate to buy into strength out of fear of being the last one in before the big crash. That fear is what keeps many investors from participating in the leading sector's biggest gains.

Healthcare Megatrend

Next, let's consider the mega-trend in the healthcare arena. The sector includes hospital management firms, HMOs, biotechnology and medical products.

Baby boomers started hitting the retirement age of 65 in 2011. The biggest wave of baby boomers only just turned 50 at the same time. The mega-trend is just getting started. It's no surprise that this sector is getting bigger and bigger in terms of revenue and market capitalization.

Consider that the S&P 500 is a "market cap weighted" index where stocks with bigger market caps have a bigger index weighting.

The more the stocks go up, the bigger the market cap gets. The bigger the market cap, the more representation the sector has in the S&P 500. As you can see below, the healthcare sector gained over 3 percentage points in S&P 500 sector weighting over the last three years.

To give you an idea of how sector weightings can change during megatrends:

  • In 2000, the energy sector represented close to 5% of the S&P 500 but in 2008 it represented more than 16% of the index.

  • In 1993, the tech sector represented close to 5% of the index but in 2000 it actually held a 33% weighting.

I clearly remember investors who were afraid to buy into energy strength in 2005 as well as those afraid to buy into strength in technology in 1996-1997. The stocks had just run too far for everyone to feel good about claiming their share of global economic growth. You don't want to be that person.

Fear? Bring It On!

The final star that's aligned here is the very fact that some people truly are afraid.

When markets mature, investors tend to buy into more defensive sectors. Instead of buying the young companies or new-growth sectors, they buy into sectors that will always be around.

They buy sectors that sell products and services that are essential, even in economic downturns. They buy sectors that are less sensitive to the business cycles and fluctuations.

They buy... the healthcare sector.

When investors become more cautious, this sector will get even more attention.

At historic market tops it's been tough to jump out of the high-flying tech stocks or energy stocks and buy something as "boring" as healthcare. But because of the baby boomers, this time the healthcare sector is where the strength lies.

Market corrections are just a part of a strong bull market. Focus your attention on the strongest subsector (healthcare providers), within the strongest sector (healthcare), within the strongest global market (the U.S.) during the sector's strongest Prime Profit Period (as Matthew Carr's new course Prime Profit Secrets teaches).

With all of these aligned stars, if you have any reason to not focus on this sector during this megatrend, please reach out to me in the comments section, below. I'd love to know what you're investing in instead.

Good investing,

Chris

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Making the Trend Your Friend

As Chris explains today, healthcare is at the forefront of a megatrend because people can't live without it and are going to need lots more of it as our society ages.

And while it's not a healthcare provider, Stericycle Inc. (Nasdaq: SRCL), a healthcare services firm, is a great way to play the trend. The hazardous-waste disposal firm has picked up 24% this year, but figures to have plenty of room to grow.

The reason: The amount of medical waste that America (and the world) produces is going nowhere but up, and the globe-trotting Stericycle is well-positioned to manage it.

David Fessler explains further:

"What continues to drive the growth of Stericycle? Two words: Medical waste. The medical-waste stream in the United States is the world's third largest.

"Hospitals, medical and dental offices, blood banks, laboratories, pharmacies and veterinary offices generate more than 2 million tons annually.

"Stericycle has continued to grow its business organically. It now boasts a 95% customer retention rate. And because it's not dependent on big customers, revenue streams are more stable. In fact, its largest customers represent less than 2% of its overall revenues.

"It has 550,000 individual customers. Most sign long-term contracts with automatic renewal. That's a testament to the company's environmentally friendly and cost-effective disposal of medical waste.

"Stericycle's growth strategy is to continue focusing on small, regulated waste customers. That's because small customers generate twice the gross margins of larger customers.

"The Occupational Safety and Health Administration's (OSHA) safety and compliance program regulates all medical waste. It's easy for any medical practice to become OSHA compliant by simply calling Stericycle. Its Sharps Management Service program handles all syringes and needles.

"The company is expanding its Pharmaceutical Waste Disposal program. This handles expired medicines and other time-sensitive medical supplies.

"Despite continued efforts to recycle, hazardous waste volumes are on the increase. Why? Simple demographics.

"Through 2017, more than 10,000 baby boomers are retiring daily. Their increased number of doctor and dentist visits and hospital stays will continue to rise as they age. All those visits mean more waste for Stericycle...

"At present, Stericycle controls 14% of the global medical waste stream. In addition to the United States, it has operations in the United Kingdom, Ireland, Mexico, Canada, Argentina, Brazil, Romania, Chile, Portugal and Spain.

"Its worldwide network includes 175 processing sites and an additional 154 transfer and collection sites.

"It's not just about medical waste, either.

"Globally, the company offers healthcare, employee training, patient transport, recycling, hazardous-waste disposal, radiation-safety services and Bio Systems reusable sharps containers.

"Stericycle is the 'big dog' in terms of hazardous-waste disposal. However, in terms of expansion there's still plenty of upside potential.

"Even here in the U.S. there's a fair amount of market fragmentation in a number of states. According to Goldman's proprietary analysis, customers covering roughly 30% of the U.S. population are still in need of Stericycle's services.

"There's no reason Stericycle's global expansion will slow anytime soon. It's a recession-proof stock that should be in everyone's portfolio. Now is a great time to add it to yours."

- Bob Keaveney with David Fessler

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