Two unusual things happened last week, and I’m wondering if they are related: First of all, I turned 75, and second I found myself confused by the stock market.

It wasn’t that way at the beginning of the year. I was only 74 years old and I felt that I had a pretty good idea of what the market would do during 2013. I expected a slow steady increase in large cap stocks, with the occasional dips; a better than average rise in stocks related to home-building, including copper; and benefits to healthcare stocks as the national health program got under way. I was down on Europe, high on Asia, and I felt that Japan would clean up its act and its market would go up.

Now I’m not so sure on all of this. So far I’ve been right on Japan. That market is doing well and seems poised to continue in an upward trend:

43013_After the bell graph 1

On copper, as we all know, I was dead wrong. Perhaps because of fears that the Chinese market is softening, copper has gone way down. I can’t help but think this is a buying opportunity.

 

 

 

043013_After the bell graph 2And so, as they say, you win a few and lose a few. In addition to holding my view on Japan, I still am down on Europe.

On healthcare I think the expected rise from universal health care has kicked in prematurely. When I look at Athena Health, (ATHN) and see that over the past six months it’s gone from about 60 to about 90, with a PE (price earnings ratio) of 190, it looks like a bubble and I can’t bring myself to buy it. United Health (UNH) looks a bit better to me, but less reliable. It’s moved up and down from about 52 to 62 over the past six months, but with a current PE of 12, more in line with the market. So if one believes that the healthcare market will improve with so many new people getting care, that might be a good buy. Some say that hospital stocks might improve, such as LifePoint Hospitals (JPNT). But it too has anticipated the future profits it hopes to see, and moved up from 36 to 46 over the past six months, with a PE of 14. I am not a big fan of hospital stocks because I rarely see good management there. Business might increase, but I doubt that profits will.

Finally one can look at medical device companies such as Medtronic (MDT) and Johnson & Johnson (JNJ). Those two have already moved up, and my guess is that they will be pressured to reduce prices in the new environment.

The only stock in the medical area that I’m thinking of buying is Cerner (CERN). This is a company offering electronic medical record systems. As confused as I feel, somehow I feel strongly that companies like this that increase efficiency will continue to have increased business demand. While it too has moved up over the past six months from 80 to 95, and has a fairly high PE around 42, I think it has further to go with less pressure on pricing than other companies in the medical field.

At the beginning of the year I was down on bank stocks, partly because my personal experience with banks is that they are poorly managed and poorly staffed. But now I think bank stocks, even Bank of America, may be good buys. The poor performance from the recession finally seems to be over and profits are starting to move up. As building and real estate comes back, as it is, the banks should benefit from lending into this market.

My final thoughts on the market are the same as when I was younger: you can’t successfully time the market. You have to think long term. I don’t think anybody knows who wrote the song “Nobody Knows,” but it sure describes my philosophy of the problem in trying to time the market.  There’s a mathematical reason why it doesn’t work, that has to do with the fact that the top days and the bottom days usually come very close together, so a timer gets whipsawed.

And so, for the moment in my confused state, I’m holding on to some cash, keeping some in short-term bond funds, writing wide put spreads well out of the money, selling calls on long positions I’ve held for some time, and praying that Apple and copper come back.

 

For information about Merv Hecht and more details on the strategies and stocks he writes about in this column, visit his website at DoubleYourYield.com.

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