Profiting from the Ebola Outbreak

It was a tough end to 2014, with the Dow Jones down 1.22%, the S&P 500 tumbling 1.46% and the NASDAQ dropping 1.67%. Global markets offered no relief, with the MCSI Emerging Markets Index ending the week 1.65% lower.

Virtually all of your Bull Market Alert positions fell last week. But your short position in the PowerShares DB Commodity Tracking ETF (DBC) ended the week with a 2.98% gain.

You were stopped out of The Rubicon Project, Inc. (RUBI) with a 10.2% gain, as highlighted in my Dec. 30 Special Alert. You also booked a very well-timed 121% gain in your option positions in Lifelock (LOCK) the same day.

Norwegian Cruise Line Holdings (NCLH) hit a new 52-week high. Both Euronet Worldwide (EEFT) and LifeLock, Inc. (LOCK) fell below their 50-day moving averages and moved to a HOLD.

After the sharp drop in Lifelock on Friday (detailed in the Portfolio Update below), keep on eye on this position. Your stop stands at $14.00, and another sharp drop could have you hit that stop. At the same time, if the stock steadies, the pullback could be an opportunity for another quick option gain. I’ll be keeping a close eye on this one.

This week’s Bull Market Alert recommendation is Halyard Health (HYH), a medical technology company focused on preventing infection, eliminating pain and speeding recovery for patients. And the bad news about the Ebola epidemic is turning out to be good news for Halyard.

If you haven’t heard of Halyard, it’s because it hasn’t been around that long. The company is a spin-off of Kimberly-Clark (KMB), and it only became an independent company on November 1, 2014.

The stand-alone Halyard operates 12 global manufacturing facilities with 16,500 employees worldwide — generating approximately $1.7 billion in net revenues. Halyard sells its brands and products in more than 100 countries and holds leading market positions in multiple categories across these areas.

As I noted, the bad news about the Ebola outbreak could be good news for Halyard. Halyard Health CEO Robert Abernathy recently confirmed that Halyard is a distributor within Ebola markets and that it manufactures products for infection control that are part of the Centers for Disease Control protocol for stopping the advancement of the disease.

In addition, many spin-offs strongly outperform the broader market once they are let loose from their former “parent” company. When a more nimble and motivated management can focus on the business, good things happen to share prices. JP Morgan recently set a price target of $50 on the stock. I think it could go much higher.

So buy Halyard Health (HYH) at market today, and place your stop at $38.00.

If you want to play the options, I recommend the April $45 calls (HYH150417C00045000), which last traded at $4.00 and expire on April 17.

Portfolio Update

PowerShares DB Commodity Tracking ETF (DBC) added to gains last week by falling another 2.98% and hitting another new 52-week low. Your short bet on commodities continued to capitalize on the extended weakness in the oil markets, as a significant portion of DBC is allocated to petroleum products, including light sweet crude oil (WTI), heating oil, RBOB gasoline and Brent crude oil. DBC also has allocations in natural gas, gold, silver, aluminum, zinc, copper (Grade A), corn, wheat, soybeans and sugar. DBC remains a SHORT SELL.

ProShares Ultra Nasdaq Biotechnology ETF (BIB) closed the week nearly flat. Although the biotech sector experienced some recent volatility on drug-pricing worries, the flat price movements last week are evidence of Mr. Market’s very short-lived memory. The heat on the biotech kettle throughout 2014 should persist into 2015. BIB stands as a BUY.

WisdomTree Japan Hedged Equity ETF (DXJ) gave back 2.42% over the holiday week. DXJ pulled back to the 200-day moving average (MA) in mid-December and has maintained its position above this line for most of the close of the year. DXJ has been above the 200-day MA for nearly all of the last six months, finding support at the 200-day MA several times during this period. DXJ is a HOLD.

Norwegian Cruise Line Holdings (NCLH) dipped 1.64%. I reported news of a recent fire aboard a Norwegian Cruise Line ship several weeks ago and characterized it as a likely “buy the dip” moment. Once again, “Mr. Market” has revealed himself to be quite forgetful, as NCLH hit a new 52-week high just last week. NCLH is a BUY.

LifeLock, Inc. (LOCK) fell 8.89% last week on a report of insider selling. Although LOCK closed a bit under its buy price last Friday, the magnificently timed recent sale of your option position locked in 121% in gains as insurance against any significant losses in this position. LOCK moved below the 50-day MA to become a HOLD.

Palo Alto Networks, Inc. (PANW) lost 4.72% last week. In addition to the positive analyst coverage from Piper Jaffray, which I highlighted in my recommendation, Oppenheimer also recently raised its price target on this stock. PANW is a BUY.

Latest Special Report

As a courtesy, I want to bring to your attention the newest version of The Top 12 Stocks for 2015, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

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