SXC Health Solutions (SXCI)
From Cabot wealth Advisory 3/29/12 Sign up for free Cabot Wealth Advisory e-newsletter
As for the current environment, the story remains the same--stocks are in a strong bull trend. You would think such a market would provide ample buying opportunities, but most of the best stocks at this point are well extended from proper entry points, or at least, lower-risk entry points.
As I talked about in my last Cabot Weekly Review video, the key isn't to obsess about a market pullback. Yes, a retreat is going to happen at some point, though I still think the odds of a full-blown market correction of 10% or more are small ... though a sharp 3% to 6% retreat isn't out of the question.
Still, while buying after a few down days in the market is wise, the real key is to buy the real leaders at the right time. Thus, look for top-performing stocks that have either consolidated for a few weeks, or have recently staged big-volume rallies out of consolidations and are now pulling back a bit.
One name on that front is SXC Health Solutions (SXCI), a fast-growing pharmacy benefit manager that has outstanding growth prospects. Here's what I wrote about the firm in Cabot Top Ten Trader back on March 19:
"Any company that can offer ways to simplify and control costs in the healthcare arena is going to get a long look from investors, and that's exactly what SXC Health Solutions does. SXC is a specialist in pharmacy benefit management (PBM), and can take over the pharmacy operations of a health plan, including claims management and review, billing, patient education and formulary analysis and control. SXC has grown significantly via takeovers, and right now the market is watching two stories. The first is the news back in October that Cigna Corp. would acquire HealthSpring, which had been one of SXC's biggest customers. The possible threat to SXC's relationship with HealthSpring seems to have abated quickly. The other piece of news is SXCI's proposed acquisition of Medco Health, a takeover that has been delayed by the FTC, which is worried about SXC becoming too dominant in its industry. Observers expect that a few modest divestitures by SXCI will ultimately secure approval. Beyond those stories, SXC's revenue and earnings trends are both strongly up, and estimates are for a 40% bump to the bottom line in 2012."
Indeed, on that last topic, analysts estimate the company's earnings to leap to $2.41 per share this year, up 48% from a year ago, and then push up to $3 per share in 2013. Historically, the company has generally beaten estimates and guided higher, so my guess is that these figures are actually conservative.
Just as important, the stock itself formed a deep double-bottom base during last year's market maelstrom, but then rallied back and tightened up in the 60 to 65 area in January and February. Then came a nice breakout, taking SXCI up to 73 or so by early March.
Since then, though, the stock has moved straight sideways on light volume, as its moving averages catch up. I think the stock can be bought either on (a) a drop toward its 50-day moving average, currently around 67.5 and rising, or (b) a big-volume push above 74, which would tell you the current pause has run its course. Either way, it looks like SXCI could offer a relatively low-risk entry sometime during the next couple of weeks.
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|SXC Health Solutions (SXCI)
2441 Warrenville Road, Suite 610
Lisle, Illinois 60532-3642
|Index Membership: N/A
Full Time Employees: 1,433