Stocks in the news this week (May 15, ‘14)

The great ‘event’ will finally happen tomorrow (May 16) – announcement of results after the protracted general elections. TV and print media had a field day in covering and analysing the elections and the likely results in an effort to grab ‘eyeballs’.

More important news have been ignored. The IIP number was –0.5% – another month of negative industrial production, but an improvement over the previous month. CPI inflation moved up – thanks to higher vegetable and fruit prices. WPI inflation eased a bit. The new government will have their work cut out.

Companies are in the midst of announcing quarterly and annual results. Their stocks are reacting accordingly – as the charts below will show. Make sure you understand what these companies do, and who they do it to, before deciding to buy or sell.

Ahmednagar Forgings

 

The stock of Ahmednagar Forgings had formed a ‘double-top’ reversal pattern during Mar-Apr ‘12 (not shown) and slipped into a bear market – dropping from a high of 197.50 to a low of 73.20 in Aug ‘13. It has been rallying since then and had already re-entered a bull market and doubled from its low when news of good quarterly results hit the market – causing a gap-up move on a volume spurt. Technical indicators are looking overbought. The stock may undergo a bit of correction or consolidation.

BHEL

Infrastructure company stocks in general, and BHEL in particular, have been suffering terribly in long bear markets. BHEL’s stock finally bottomed out at 100 in Aug ‘13. It has managed to return to a bull market and doubled in value from its low. The recent price spurt was on rumours of a stake sale. Technical indicators are looking overbought. Expect some correction or consolidation.

Dr Reddy’s

The stock of Dr Reddy’s has been in a long bull market and touched a high of 2940 in Feb ‘14. It went into a corrective mode for 2 months before recovering to touch a lower top of 2783 on Apr 30 ‘14. After consolidating sideways for a few days, the stock price crashed on huge volumes after announcement of disappointing Q4 results. Technical indicators are looking bearish and a bit oversold. (Question for SEBI: Was there insider selling before result announcement?)

LG Balkrishnan

After touching a high of 338.50 in Apr ‘12 (not shown), the stock of LG Balkrishnan dropped into a bear market that bottomed out at a low of 152 in Aug ‘13. The stock rallied spectacularly since then – first returning to a bull market in Nov ‘13 and then moving up to triple in value from its low. Today’s price spurt on strong volumes was due to announcement of good results and a liberal 1:1 bonus issue. Technical indicators are looking overbought and showing negative divergences by failing to touch new highs. The stock is likely to move higher after a bit of consolidation.

Should you enter healthcare sector stocks now?

Like the FMCG sector, the healthcare sector is also considered a ‘defensive’ sector. What does ‘defensive’ sector mean? It means stocks from the sector usually don’t fall as much as the Sensex or Nifty during down trends. Nor do they rise as much as the Sensex or Nifty during up trends.

Is that good or bad? Well, let us say they provide more stability to your portfolio by being less volatile. The added advantage of owning healthcare sector stocks is that they don’t go in and out of fashion. If you are a diabetic or suffer from hypertension, you have to take a regular dose of medicines regardless of the state of the economy, or a change of government, or an increase in real-estate prices.

With the Sensex and Nifty under bear attacks, is this a good time to enter healthcare sector stocks? Yes, as long as you are selective. Not all stocks from the sector are performing well – as the 1 yr daily bar chart patterns of 10 stocks from the sector show.

Sanofi-Aventis

After consolidating sideways with an upward bias for 10 of the past 12 months, the stock has broken out upwards. However, the stock trades in very low volumes, which causes large price swings and makes buying or selling a difficult proposition.

Glaxo Pharma

The stock has been in a sideways consolidation for the past year. It is also prone to big price swings because it trades in low volumes. Investors holding such stocks usually treat them as family heirlooms and pass it on to future generations.

Novartis

The stock had been consolidating sideways with a downward bias before dropping deeper into a bear market. The recent Supreme Court judgement against its patent application for a modified form of its popular cancer drug ‘Gleevec’ has been a setback.

Cadila

The stock has been in a down trend since touching a peak in Sep ‘12, and has dropped into a bear market.

Dr. Reddy’s Lab

The stock is in a bull market, despite a sharp correction during Feb ‘13. It appears to have formed a bullish ‘double bottom’ pattern.

Ipca Labs

The stock has been in a steady up trend for the past 12 months. Periodic corrections below its 50 day EMA has helped it to move higher. This is what a bull market looks like on a chart.

Lupin

This stock is also in a year-long up trend that has twice received support from its rising 200 day EMA.

Sun Pharma

Another stock that has been moving up in a bull market for the past year.

Opto Circuits

Once a favourite of small investors, the stock has been in a down trend for the past 12 months, though it is showing some signs of a recovery. THis is what a bear market looks like on a chart.

Poly Medicure

The stock is in a bull market, but has been consolidating sideways for the past 5 months.

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 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

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 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 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

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

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 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

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

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

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.)