Quest Diagnostics: Success Through Tests

Passage of the legislation would almost certainly increase Quests' business. Diagnostic tests are at the core of health care services, and even though the number of tests per U.S. citizen will likely decline in the years ahead, when one adds 30-45 million more citizens regularly accessing health care services annually, within 10 years, the probability of increased business is high, to say the least.

The First Call FY2010/FY2011 EPS estimates for DGX are $4.22 to $4.63. If health care reform passes, those EPS estimates will be on the low-end, no question.

Technically, as noted, Quests' shares have overcorrected since shooting though psychological resistance at $60, and have also fallen below the key, 50-day moving average. Typically, each would be a concern, but the calculation here is to maintain the play, even amid the policy uncertainty on Capitol Hill. How Congress will vote on health care reform is purely speculation at this point, but DGX appears to have enough business lined-up to propel shares higher in the event health care reform is defeated.

2010 Outlook: I view Quest as a long-term play, but if investors are looking to sell DGX within the year, it's probably best to take your profits after it rises to $61-62, if it fails to rise above $63.

Stock Analysis: I consider Quest Diagnostics to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, and I wanted to buy the stock, I'd consider buying a 25% position in DGX now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my DGX position before April 2010 and I'd put a sell/stop loss at: $32.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.