A Shot Of Big Pharma
John Dobosz 05.07.08, 6:25 PM ET
http://www.forbes.com/2008/05/07/pfi...ech_newsletter
Going against the grain can produce nice gains. After all, it's hard to buy low and sell high when you pay too much for a stock. If your investing time horizon is longer than 18 months, there's a good case to be made that you should be increasing your allocation to the beaten-down drug stocks.
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Charles Biderman, CEO of Trimtabs, recommends taking a long position in the Health Care Select Sector SPDR (amex: XLV), an exchange-traded fund (ETF) that holds stocks of companies engaged in sales of health care equipment and services, biotechnology and pharmaceuticals.
Year-to-date, the XLV is down about 15%, giving back the gains it made in the second half of 2007 as investors braced their portfolios for a recession and bear market. Biderman, who tracks flows of funds into mutual funds, ETFs and hedge funds, points out that liquidity is currently most bullish in the XLV and the Technology Select Sector SPDR (amex: XLK). In his Trimtabs model portfolio, Biderman recommends that readers take a 60% position in the XLV.
Some of the top holdings in the XLV include Johnson & Johnson, Pfizer, Merck, Abbott Laboratoriesand UnitedHealth Group.
One of the reasons that Biderman recommends being bullish on U.S. stocks is that net insider selling has averaged only $80 million daily for the past eight weeks, and has been less than $1 billion in every week so far in 2008.
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"The best-informed market participants--the top insiders who run U.S. public companies--continued to send very bullish signals through their actions in the stock market," says Biderman. "The $4.7 billion in net insider selling in the first four months of 2008 was the lowest amount we have ever measured in a four-month period, which suggests insiders are anticipating big gains rather than big losses in stock prices over the next few months."
In addition, the U.S. economy does not appear to be accelerating to the downside, with new jobless claims for April coming in less than expected. Plus, tax withholdings suggest that incomes are holding up nicely.
"The U.S. economy that almost everyone left for dead is sputtering back to life," notes Biderman. "If and when withholding gains again top 5% year-over-year, we would probably turn leveraged bullish, everything else being equal."