American Consequences - September 2018

Today, the opportunity in health care stocks is fantastic once again... Reasonably Priced, Hated, and in an Uptrend First, let’s look at value. Health care stocks aren’t all-time cheap. But they’re a better deal than you might expect. The top chart to the right shows it... The sector recently hit a five-year low based on its price-to-sales ratio (one of the simplest measures of stock market value). It now trades for just two times sales. The same is true for its price- to-earnings ratio (P/E) – which is the most classic measure of valuing a stock. The health care sector basically trades for the same P/E as the overall market. And if the Melt Up takes off, these companies can absolutely soar. Despite the value here, investors aren’t interested. They’ve fled the sector. Shares outstanding of the largest health care exchange-traded fund (ETF) are at their lowest levels in years. Take a look at the bottom chart to the right... Shares outstanding of major ETFs give us a glimpse into what investors think of an idea. ETFs can create and liquidate shares based on demand. So, a falling share count means investors aren’t interested. And in this case, the fund’s shares

DOWJONES U.S. HEALTH CARE PRICE-TO-SALES RATIO

HEALTH CARE SPDR (XLV) SHARES OUTSTANDING

outstanding are down roughly 13% in less than a year. That tells us that investors hate the idea of owning health care stocks... which is exactly what we want to see. The uptrend – the most important piece of the puzzle – is here, too. My advice is simple. Investors want to make sure they capture the gains of the Melt Up. And they can do it by owning health care stocks, with leverage, right now.

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