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Steady Double Digits in One of the Last Bull Markets

By Ian Davis
Monday, September 22, 2008

In the last six months, only 19 of the 100 sectors I track have reached a new high.
 
And almost all of the 19 are related to commodities. They include miners, producers, explorers, and transporters of minerals and energy.
 
But there are a couple of exceptions...
 
With the recent buyout of Budweiser by InBev, brewers reached new highs about seven weeks ago. Another out- performer I've written about before is the Biotech sector. It's making new highs despite the slowdown in the economy.
 
The most recent sector to climb to new highs is related: medical equipment makers.
 
Medical equipment makers are close cousins to the biotech sector. Both research and develop products for the health care industry. But this sector is not as cyclical as biotech.
 
It's up 5.6% in the last six months. The S&P is down 9.3% over the same time.
 
Medical Equipment Companies Fall Only in Times of Extreme Panic
 
 
 
As you can see, two severe selloffs have occurred in the last 18 years.
 
The first happened at the tail end of the dot-com bust in mid-2002. This decline roughly matched the S&P 500's performance at the time (medical equipment makers declined 31%, the S&P 28%). It was a simple case of universal panic.
 
The other began at the end of 2005. A cardiac defibrillator paddle malfunction caused the death of a 21-year-old. As you can imagine, investors were spooked. The entire sector sold off by about 18%.
 
Besides these two instances, the sector's returned a consistent 11% per year.
 
However, medical equipment makers are slightly expensive right now. They have a price-to-earnings ratio of 27.6, 23% above their long-term median of 22.4, and a price-to-book ratio of 3.36, 7% above their long-term median of 3.1.
 
The Medical Equipment Sector Is Slightly Expensive
 
So are medical equipment makers a good buy?
 
I'd wait for a selloff before buying. The sector is not immune to investor panic. And I think we could easily run into another bout of panic before this bear market is over.
 
However, as a long-term hold, medical equipment makers are hard to beat. The sector has shown a fairly consistent 10% annualized return since the 1970s.
 
Good investing,
 
Ian Davis




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Market Notes
Homebuilders Pulte Homes and Toll Brothers buck the trend... both hit new highs despite lethargic construction industry.
 
Government bailout boosts Big Finance... BB&T, U.S. Bancorp, and Wells Fargo at 52-week highs.
 
But it doesn't save Big Pharma... Merck and Wyeth at new lows.
 
Computer giant Dell hits 10-year low.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%