Big Gains Ahead in This Health-Care Winner

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was another solid week for both U.S. and global stock markets. The S&P 500 was up 2.42% and the NASDAQ jumped 3.31%. Even the MCSI Emerging Markets Index recovered 4.15% — its strongest weekly gain in many months.

Big gainers in your Bull Market Alert portfolio included your leveraged bet on the price of gold — ProShares Ultra Gold (UGL), up 10.27%; the iShares Dow Jones US Home Construction (ITB), jumping 7.33%; Bank of Ireland (IRE), climbing 5.48%; and Delphi (DLPH), rising 4.79%.

Four out of your current Bull Market Alert positions — Delphi (DLPH), Jazz Pharmaceuticals (JAZZ), Stratasys Ltd. (SSYS) and iShares Dow Jones US Home Construction (ITB) are showing double-digit percentage gains.

Although Melco Crown (MPEL) rose 2.67% last week, with the Chinese stock market under substantial pressure, I am recommending that you sell your stock position to roughly break even. Also, sell your MPEL options, which expire this Friday at a loss.

This week’s Bull Market Alert recommendation — WellPoint, Inc. (WLP) — revisits the controversial, but profitable, health-care sector.

WellPoint, Inc. (WLP) is one of the nation’s largest health-benefits companies and is particularly well positioned to benefit from Obamacare.

Here’s why I think you’ll see double-digit percentage gains in this stock in the weeks ahead.

First, WellPoint already holds the number one market share position in the country in selling directly to the consumer. It also is tops among small-group employees purchasing coverage. Meanwhile, the company has invested about $150 million to prepare for the new health-insurance exchanges. You’re likely to see a lot of WellPoint signs in your local Walgreen’s over the coming years.

Second, in December of 2012, WellPoint acquired Amerigroup. The expanded WellPoint now serves more than 36 million medical members and has a Medicaid presence in 20 states — the largest in the industry. WellPoint’s size and scale provide it with significant bargaining power with health-care providers. For investors, that translates into higher margins and higher profits versus smaller competitors.

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Third, WellPoint’s management is clearly committed to maximizing shareholder value. In 2012, WellPoint repurchased a staggering 39.7 million shares, or 11.7%, of its own shares outstanding. That improves both earnings per share and investment returns to investors.

Finally, from a fundamental perspective, WellPoint sells at a Price-to-Earnings (P/E) ratio of only 10, a more than 20% discount to the 12.2 median P/E of its peers. Meanwhile, WellPoint’s new senior management projects double-digit earnings per share (EPS) growth over the next five years.

From a shorter-term trading perspective, the health-care sector is among the strongest performers in Q3. Indeed, WLP has substantially outperformed the S&P 500 over the past three months.

So buy WellPoint, Inc. (WLP) at market today, and place your stop at $79.00.

If you want to play the options, I recommend the December $87.50 Calls (WLP131221C00087500).

Portfolio Update

Bank of Ireland (IRE) added 5.48% last week. Although the Irish recovery has stepped out of the media spotlight over recent weeks, the trend remains quietly positive. When Ireland suffered its banking crisis several years ago, the Irish government literally “chose a few winners” and IRE was the strongest of the lot. In fact, Bank of Ireland was so much stronger that it was able to secure a hefty amount of private funding to keep it afloat. IRE is scheduled to report earnings Aug. 2, before the market opens. IRE touched its 50-day moving average (MA) last Friday, but remains just shy of it, and is a HOLD.

Delphi Automotive (DLPH) added 4.79% last week, continuing with its third winning week in a row. DLPH is up an amazing 40% year-to-date and up 30% since your purchase. You booked a 62.06% gain on half of your DLPH options last week. DLPH will report earnings on July 31, before markets open. Hitting another 52-week high last week, DLPH remains a BUY.

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Stratasys Ltd. (SSYS) gained 1.54% last week. Expect some significant volatility in SSYS over the next week or so as it challenges the weighty $95.00 price level. Investors have been to this high twice before this year, making the third time likely a charm as the 3D-printing boom rolls on. SSYS is scheduled to report earnings on Aug. 1, before markets open. SSYS is a BUY.

Jazz Pharmaceuticals (JAZZ) gained 0.87% and hit a new all-time high of $74.43. Cantor Fitzgerald reiterated its “Buy” rating on JAZZ last week, setting a new $86.00 price target. This represents a possible 15.5% gain for the stock. Cantor Fitzgerald wrote that the Food and Drug Administration’s (FDA) decision to place more regulation on generic drug-makers is a positive development for JAZZ’s bottom line. JAZZ is a BUY.

Sony Corporation (SNE) rose 1.98%. Last week’s gain is the fourth weekly rise in a row for SNE. Sony is breaking new ground with its Xperia Z series of smartphones and tablets as it works its way into the formidable mobile computing market. A recent review by a technical guru found this new line of hardware to be a serious competitor to Apple’s iPad — still the current gold standard in the world of tablets. SNE will report earnings on Aug. 1, before markets open. SNE remains a BUY.

iShares Dow Jones US Home Construction (ITB) soared 7.33% last week, looking like it will finally break out from the sideways trading pattern at its 200-day MA. The 200-day MA is a prominent “Buy level” in most cases, and ITB seems to be moving upwards as the demand for new home construction begins to heat up. ITB is a BUY.

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ProShares Ultra Gold (UGL) was another big winner in your Bull Market Alert portfolio last week, powering 10.27% higher. With Federal Reserve Chairman Ben Bernanke back-pedaling a bit on his mere suggestion of winding down stimulus activities, gold investors can once again see the shine in gold. Gold posted some of its biggest gains since 2011 late last week and is extending those gains into early trading this morning. UGL is a BUY.

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PS: Join me for the San Francisco Money Show, Aug. 15-17, at the San Francisco Marriott Marquis. There is no charge for this conference, but you do need to register. Call 1-800/970-4355, and mention code #031736.

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