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Sunday, February 13, 2011

Will Healthcare Sector stocks safeguard your Portfolio?

Stocks from the Healthcare Sector are supposed to be ‘defensive’ in nature. Translated into English, that means these stocks are likely to ‘outperform’ the Sensex on the down side. In other words, they fall less than the index when the bears attack.

Is that one of those investment myths that needs to be busted? It would appear so, from the selling pressure felt by domestic stocks from the Healthcare Sector. Given below are the charts of 10 stocks – 3 MNC pharmaceutical stocks, 5 domestic pharmaceutical stocks and 2 domestic medical devices stocks.

Aventis

Aventis_Feb1111

Aventis has been in a gradual down trend since touching a peak of 2059 back in Jul ‘10. It slid below its rising 200 day EMA to touch a low of 1710 in Dec ‘10. A sharp pullback found resistance from the down trend line, and the stock has once again slipped below the 200 day EMA. The technical indicators are bearish, which means the down trend will continue a while longer. In spite of the 7 months long down trend, the stock has corrected just 17% from its peak, marginally outperforming the Sensex (which has corrected 18% in 3 months).

Glaxo Pharma

GlaxoPharma_Feb1111

Glaxo Pharma is by far the biggest and the best of the MNC pharma stocks. It continues in a bull market, trading above its rising 200 day EMA, and making higher tops and higher bottoms. The technical indicators have made higher bottoms while the stock chart has made a lower one. The positive divergences are hinting at a resumption of the up move. The stock has so far corrected only 11% from its Jan ‘11 peak – outperforming the Sensex.

Novartis

Novartis_Feb1111

Novartis has been correcting with the Sensex. After reaching a high of 735 in Nov ‘10, it has been in a down trend that touched a low of 585 – slightly underperforming the Sensex by correcting 20%. The technical indicators are bearish, but except for the MACD, the other three have made higher bottoms as the stock made a lower one. A pullback rally could pierce the down trend line from below.

Cadila

Cadila_Feb1111

Cadila has been one of the better-performing domestic pharma stocks. It is trading above its rising 200 day EMA, and corrected 18.5% from its Jan ‘11 peak of 864, marginally underperforming the Sensex. After spending just two trading sessions below the 100 day EMA, the stock has moved up to the 50 day EMA. The technical indicators are suggesting a continuation of the pullback.

Dr. Reddy’s Lab

DrReddysLab_Feb1111

Dr. Reddy’s Lab has been correcting with the Sensex since touching a high of 1855 in Nov ‘10. It has dropped below the 200 day EMA and reached a low of 1451 – underperforming the Sensex by falling 22%. The technical indicators are not showing any signs of a recovery. Only the RSI has made a higher bottom, which could lead to a pullback. Bears may use that as a selling opportunity.

Ipca Labs

IpcaLabs_Feb1111

Ipca Labs performed very well till it touched a high of 350 in Dec 31 ‘10. A sharp correction dropped the stock below the 200 day EMA to 272 – a 22% correction that underperformed the Sensex. The technical indicators are bearish, but there are signs of the pullback lasting a few more sessions. Bears may snuff out bullish hopes by selling the rise.

Lupin

Lupin_Feb1111

Lupin had quite a spectacular rally, touching a high of 519 on Dec 1 ‘10. It has since been in a down trend that dropped the stock below the 200 day EMA to a low of 367 – correcting 29% and underperforming the Sensex by a wide margin. The pullback of the last two sessions has taken the stock above its 200 day EMA. The technical indicators remain bearish. Till the stock breaches the down trend line, which is some distance away, bears will hold sway.

Sun Pharma

SunPharma_Feb1111

The settlement of the dispute over acquiring the Israeli drug company, Taro, has been a boon for Sun Pharma. But its US subsidiary is still under a regulatory cloud. The stock hit a high of 511 in Jan ‘11, followed by a sharp correction below the 200 day EMA. The low of 392 means a 23% correction from the top. The good news is that the stock has recovered quickly and moved above the 200 day EMA. The technical indicators are still bearish.

Opto Circuits

OptoCkt_Feb1111

Opto Circuits has been the darling of small investors with its regular bonus and dividend announcements. But the stock has been an underperformer of late, touching a high of 328 back in Sep ‘10 and then steadily declining to a low of 225 in Jan ‘11. The 31% correction from the top is still not over. The bearish ‘death cross’ is marked with a blue oval. The technical indicators are showing some bullish signs. But the down trend appears strong at the moment.

Poly Medicure

PolyMedicure_Feb1111

Poly Medicure, a retractable syringe maker, is technically still in a bull market. A 29% correction from the peak of 337 has taken the stock down to 238, just above the flattening 200 day EMA. The technical indicators are looking quite bearish. The support from the 200 day EMA may get broken soon. A partial switch from Opto Circuits to Poly Medicure could be an interesting move.

Note: I have deliberately not given any buy/sell recommendations - giving an opportunity to the readers to come up with suggestions. Assume that the fundamentals of all 10 companies are investment-worthy. (If you feel shy about using the ‘comments’ link below the post, feel free to send me an email.)

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