It’s been a rough start to the year, no bones about it. Regular readers know that Peter Switzer and our team of experts do not believe it is the beginning of the end, rather, as Charlie Aitken says today, it is a “textbook trading correction”.
The data in the US is still pointing to recovery, and here at the Switzer Super Report, we think it’s just a bit of spook, as the actuality of the tapering of QE hits in.
But we can’t deny it was a tough month. As the S&P/ASX 200 slipped back 3%, our Switzer Super Report portfolios managed to outperform the index [1] just slightly but as they were still negative, it’s not something we like to crow about too much.
Health care opportunities
But what was interesting in January, was the outperformance of the health care sector, which was up by 0.3%. For the 12 months to Feb 5, health care’s annual return is 16.74%, compared to 3.84% for the ASX 200.
One stock that has got quite a lot of interest at the Switzer Super Report is Sirtex. Roger Montgomery [2] at Montgomery Invest likes it. He first wrote about it for us in November when he compared it to that other Australian medical success story – Cochlear.
“Relatively few Aussie inventions have ever improved the quality of lives of patients all over the world. Cochlear’s hearing devices are one example of a product that has. Seeing current Sirtex management in action gives us confidence that, in time, SIR-Spheres will be recognised as another.”
If you’d bought in then, you would have been very pleased, as in January this year when Montgomery revisited it [3], the share price had rallied 25% after it announced second quarter growth in dosage sales.
Platypus Asset Management is another fundie that likes the company. They wrote about it [4] back in July, even before Roger got on the bandwagon.
“If the company reports successful clinical trial results, it will grow its addressable market by over 15 times, from approximately 30,000 salvage patients treated to date, to 480,000 liver cancer patients,” Platypus analyst, Jelena Stevanovic, said then.
Source: Yahoo Finance
New opportunities
One big healthcare opportunity that could make its way on to the market this year is Medibank Private.
Speaking at a briefing on Tuesday, Platypus Asset Management chief investment officer, Don Williams, said of the health insurer: “The government has a commitment to privatise and I wouldn’t be surprised if it happened this year.”
Healthscope is another one. It is expected to consider a valuation close to that of Ramsay Healthcare – although it is by no means a Ramsay.
“If the correction continues for another month or two, they may have to revise their valuation,” Williams said.
But overall, after a rush of IPOs late in 2013 as many look to take profits, listings could be slower and lighter this year, particularly in the small cap space, according to HLB Mann Judd partner, Simon James.
“It’s very hard for the smaller caps to get listed now,” he said.
“It astounds me how many businesses are not sale ready. They don’t even have their affairs in order.”
The HLB Mann Judd IPO Watch pointed out that the 2014 IPO pipeline only had five planned listings early in January, compared to 14 at the same time last year and 26 in 2012.
“Despite the low number of listings, the target subscriptions sought are nevertheless in excess of recent years. In 2013, the planned listings were seeking to raise a total of $85.2 million and, in 2012, the 26 applications were seeking to raise $122.2 million,” the report said.
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Also in the Switzer Super Report:
- Charlie Aitken: Bank on it! [5]
- Fundie’s favourite: Macquarie (MQG) – well placed to benefit [6]
- Roger Montgomery: REA Group offers some upside [7]
- Staff Reporter: Buy, Sell, Hold – what the brokers say [8]
- Tony Negline: A new product that focuses on income [9]
- Questions of the Week: Bank fear and when to buy ETFs [10]