It has been a tough year for investors. We have been dealing with recession fears, housing market worries, high gasoline prices and a very weak U.S dollar. As much as we would love to say that the worst is behind us, we still could be in for some more rocky times ahead. So its best to try to figure out which stocks would be best to avoid for the time being.
Richard Gibbons wrote up a nice piece over on The Motley Fool that looks at some of the stocks that we would be wise to stay away from at this time. Regardless good or bad times, he is convinced there are always ways to make money, but in order to find the winners, it is also necessary to pull out the losers.
So how can we separate out the winners from the losers?
Gibbons seems to have a simple answer for this. He believes there is really no use in wasting our time trying to separate the winners from the losers as there are so many great cheap stocks that could offer us a chance to make money. Gibbons' advice is to not choose ugly and risky companies that could put our hard earned money at risk. To makes this clear, he uses a baseball analogy, expressing his options for the curve balls instead of the fastballs.
Yesterday was a difficult trading session for the managed healthcare group, with industry giant WellPoint Inc. (NYSE: WLP) cutting its 2008 profit forecast, blaming higher claims expense and the weak market conditions. Today is another tough day, with health care companies taking another hit on pressure from Humana Inc. (NYSE: HUM), which warned about lower-than-expected first quarter and full year earnings results.
Blaming increased prescription expenses, the second largest seller of Medicare drugs cut its first-quarter earnings outlook to a range of 44 to 46 cents a share against its previous prior guidance of 80 to 85 cents a share. Analysts, on average, expected the health insurer show higher first-quarter earnings of 78 cents, according to Thomson Financial.
The company also projected full-year earnings between $4.00 and $4.25 per share, down from a previous forecast of $5.35 to $5.55. Humana's estimates were below analysts' expectations for full-year earnings of $5.47per share.
Coventry Health Net (NYSE: CVH), a managed healthcare organization, is recently trading at $39 in pre-open trading, below its close of $43.
Humana (NYSE: HUM) lowered Q1 and 2008 guidance this morning and Wellpoint (NYSE: WLP), a health benefits company, lowered its full-year financial outlook on March 11.
CVH overall option implied volatility of 40 is above its 26-week average of 30 according to Track Data, suggesting larger price movement.
Health Net (NYSE: HNT), a managed care organization, is recently trading at $31.43 in pre-open trading, below its close of $34.58.
HNT overall option implied volatility of 45 is above its 26-week average of according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Outfits that manage health care plans bring an amazing array of business and technical specialists together to deal with a service that can be as complex socially as it is medically. One of the most successful U.S. practitioners of the art is headquartered in Louisville, Kentucky.
Humana (NYSE: HUM) provides health insurance coverage and related services through various employer groups and government-sponsored programs. It offers Medicare Advantage health plans and prescription drug coverage to members throughout the United States and administers managed care plans for other government agencies and the military. It also offers health plans and specialty products to commercial employers and individuals. In all of its programs, Humana serves more than 13 million members. Aetna (NYSE: AET) and Cigna (NYSE: CI) are major competitors.
The company pleased investors last week, when it affirmed its in-line FY08 EPS guidance of $5.30 to $5.50. It also reiterated its forecast for a net 2008 membership gain of 200,000-250,000 in Medicare Advantage enrollment.
Humana (NYSE: HUM) reported third-quarter income today of $302.4 million, or $1.78 per share, up from $159.2 million, or 95 cents per share, a year earlier -- an increase of 90%. Excluding special items, Humana's Q3 EPS was $1.53. Analysts were expecting earnings of $1.49 per share from the health insurance company. This morning's positive surprise lifted the stock to a new all-time high of $81.50 just after the opening bell.
Additionally, the company projected that it would add at least 200,000 members to its full-service Medicare Advantage plans. The company has an optimistic outlook for 2008, thanks to improvements in its Medicare prescription-drug plans and commercial plans for employers. The company estimated full-year 2007 earnings of $4.50 to $4.55 per share, slightly above the Wall Street target of $4.52. Humana forecast 2008 earnings of $5.30 to $5.50, also above analysts' expectations of $5.20. If you think these figures represent company strength, then now might be a good time to look at a bullish hedged trade on HUM.
As noted, given the current choppy/consolidating market conditions, adding a few defensive plays is a prudent strategy. Humana Inc. (NYSE: HUM) is an insurer worth an evaluation.
Humana's Medicare and Medicare prescription business, 50-state presence, likely substantial membership growth, and cost controls make it an "insurance company of significance." Another major positive: the currently underserved Medicare population, and an expanding Medicare demographic, the latter courtesy of the U.S. baby boom generation's retirement. HUM closed Thursday up $3.43 to $76.93.
The qualifiers? Competition on HUM's commercial business side is a hurdle, but overall, the risk/return for this stock is favorable.
[Note: Technical analysis agnostics stop reading here; all others continue.]
Technically, Humana's chart looks strong. The stock did straddle its 50-day moving average this summer, but has since remained solidly above it, while also clearing $65-$68 resistance. With a new 52-week high recently in place and a P/E of 21, HUM is not cheap, but it's a reasonable price to pay for this safety-and-growth hybrid.
Stock Analysis: Humana is a low-risk stock. Investors with an investment horizon longer than 1 year should be rewarded from HUM's shares. A preferred entry price if one were to buy would be below $75, if the market presents that opportunity. Sell / Stop Loss: $47.
Apple (NASDAQ: AAPL) is recently up $11.64 to $186. American Technology Research says, "Strong quarter driven by Macs; Raising estimates and price target." AAPL November option implied volatility of 38 is below a level of 51 from yesterday and its 26-week average of 43 according to Track Data, suggesting decreasing price risk.
Humana (NYSE: HUM), a health benefits company, is recently up $1.47 to $76.16 on unconfirmed Aetna (NYSE: AET) buyout chatter. HUM is expected to report EPS on 10/29. HUM call option volume of 3,249 contracts compares to put volume of 126 contracts. HUM October option implied volatility of 37 is above its 26-week average of 31 according to Track Data, suggesting traders are positioning themselves for a high share price.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Walgreen, CBS Corp, SL Green Realty, Brandywine Realty Trust and Navteq were today's noteworthy downgrades:
Walgreen (NYSE: WAG) was downgraded to Neutral from Buy at Merrill and to Market Perform from Outperform following its weak Q4 report. Merrill sees limited upside following the worse-than-expected quarter.
CBS Corporation (NYSE: CBS) was downgraded to Hold from Buy at Deutsche Bank to reflect the company's soft rating trends and poor local advertising growth.
Banc of America downgraded shares of SL Green Realty (NYSE: SLG) and Brandywine Realty Trust (NYSE: BDN) to Neutral from Buy. The firm downgraded shares of SL Green to reflect their more cautious stance on the office sector and believes uncertainty over cap rates will limit share upside, and downgraded shares of Brandywine to reflect a lack of near-term catalysts and their more cautious stance on the office sector.
Navteq Corporation (NYSE: NVT) was downgraded to Neutral from Buy at UBS and to Market Perform from Outperform at JMP Securities following its acquisition by Nokia Corporation (NYSE: NOK).
OTHER DOWNGRADES:
Goldman Sachs removed Monsanto Company (NYSE: MON) from its Conviction Buy List.
Outfits that manage health care plans bring an amazing array of business and technical specialists together to deal with a service that can be as complex socially as it is medically. One of the most successful U.S. practitioners of the art is headquartered in Louisville, Kentucky.
Humana (NYSE: HUM) provides health insurance coverage and related services through various employer groups and government-sponsored programs. It offers Medicare Advantage health plans and prescription drug coverage to members throughout the United States and administers managed care plans for other government agencies and the military. It also offers health plans and specialty products to commercial employers and individuals. In all of its programs, Humana serves more than 13 million members. Aetna (NYSE: AET) and Cigna (NYSE: CI) are major competitors.
The company pleased investors earlier in the week, when it preannounced Q2 EPS of $1.28. The Street had been expecting $1.17. Management also guided Y07 EPS to $4.40-$4.50, versus consensus of $4.21. The stock popped into the initial stage of a bullish "pennant" consolidation pattern on the news.
MOST NOTEWORTHY: Palm, Inc (PALM), New Century Financial Corp (NEW), Yahoo! (YHOO) and Sirius Satellite Radio Inc (SIRI) were some of today's more notable downgrades.
JP Morgan downgraded Palm, Inc (NASDAQ: PALM) to Underweight from Neutral citing product line, execution and competition concerns.
New Century Financial Corp (NYSE: NEW) was downgraded to Underperform from Hold at Jefferies and suspended their estimates as they believe the 10-K filing delay indicates that the company's financial and operating situation continues to deteriorate.
Matrix USA cut Yahoo! (NASDAQ: YHOO) to Sell from Hold, providing an intrinsic value of $25. They believe strong competition, as well as rising popularity and accessibility of free social and entertainment content, is negatively impacting the company.
Barrington downgraded Sirius Satellite Radio inc (NASDAQ: SIRI) to Market Perform from Outperform. The firm believes 2007 sub-growth target will lag previous forecasts.
OTHER DOWNGRADES:
JP Morgan downgraded shares of The Scotts Miracle-Gro Co (NYSE: SMG) to Neutral from Overweight based on SMG's lower fundamental visibility with recent increases in raw materials and the company's underperformance during its peak-season.
JP Morgan also downgraded Marvell Technology Group Ltd (NASDAQ: MRVL) to reflect dilution concerns from the XScale acquisition, slow end-market growth and stock option uncertainty.
Jefferies downgraded Humana Inc (NYSE: HUM) to Hold from Buy with a $60 target after checks confirmed concerns that recent budgetary analysis in Washington has heightened the risk for legislation to curb Medicare Advantage program growth.
RBC cut Mediacomm Communications Corp (NASDAQ: MCCC) to Underperform from Sector Perform based on valuation.
Wachovia downgraded Atlas Pipeline Partners (NYSE: APL) to Market Perform from Outperform following the company's Q4 shortfall.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
Yesterday was a difficult trading session for the 
Coventry Health Net
Humana
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