Out Fox The $treet

If the news from the WSJ late Sunday night is accurate, Aetna (AET) offers an extremely cheap stock. The company is rumored to have finalized a deal to acquire Coventry Health Care (CVH) in a $5.7B deal. Both companies are leading national managed health care companies. Coventry has a larger focus on government-based health plans that apparently attracted the interests of Aetna. Considering Aetna has only a $12.7B market cap, this is a sizable deal for the company to undertake, though the company could quickly show how beneficial a mostly cash deal can be in this ultra low interest rate environment. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Coventry Health Care (CVH), Teradyne (TER), Foster Wheeler (FWLT) The market has become increasingly technically driven making investment decisions based on fundamentals virtually worthless. Too many investors feel the fundamentals could collapse with a double dip just as they did in 2008. As I wrote in a previous entry [Coventry Health Ups Guidance - Stock Limps Higher], even a company showing fundamental improvements is ignored by the market. CVH trades at a 7 PE multiple which in normal environments would be 2-3x higher. James Altucher published a piece in the Wall Street Journal highlighting 7 reasons why the SP500 could hit 1,500. Nearly a 40% gain from the current levels. He highlighted several reasons regarding the strength in corporate profits something that is historically important to stock prices. When the market stabilizes, profits will once again become important so its key to understand where the market could go based on current projections. Corporate Profits at Record H...

Cheap, cheap, cheap. Amazing how truly bearish this market has become. All earnings expectations are scrutinized to the nth degree. Even a strong company like Coventry Health (CVH) can up guidance for 2010 by nearly 10% and see the stock barely react with the PE at only 6.7. The stock has been down 35% over the last couple of months. How did we get to a point where investors are so bearish that they completely ignore fundamentals? Sure CVH is in the healthcare sector and Obama's new healthecare bill raises alot of concerns in the industry, but CVH has had a couple of months to study the impacts and they are comfortable enough to up guidance. Excluding a beneficial impact from Medicare Advantage private payments of 28 cents per share, the forecast range of $2.47 to $2.62 is well above the consensus $2.31 analysts have been projecting. ($2.55 midpoint) In addition they also recently made an accretive acquisition on 6/30. Mercy Health Plans has roughly 180K members providing CVH with...

Sold Coventry Health (CVH) shortly after the open and not long after the Aetna warning. Aetna is in the similar health insurance sector and warned of much weaker results. Based on this and the not so promising future for health insurance due to pressures from Obama Administration I'm not bullish on the sector. We originally bought CVH based on cheap PEs and the desire for exposure to the healthcare sector with the market still in crisis. Unfortunately, we should've pulled the trigger at $20 close to the 200EMA. Luckily though we got out with a nice gain around $18. This sector is still cheap so we'll look to re-enter if the market gets hit hard. Edit 6/4: CVH initially rebounded yesterday making us wonder if the sell was prudent. Maybe Aetna wasn't that applicable to CVHs results. Maybe it'll hold the moving average after all. Well today, CVH sold off on a up 1% day and closed below the 20EMA at $18.10. This was a very bearish move and validates our sell. It's ...

Coventry Health (CVH) jumps today on better then expected earnings. This has been a continuing theme in the health insurance sector. Just yesterday Humana (HUM) strong on much stronger results. This sector in general trades at very low PEs so it isn't that surprising that they've jumped on earnings. This doesn't erase the fears that the Obama administration will continue to look at ways to wring profits from this group, but they remain very cheap at current levels. CVH forecasts a average eps of $1.8 for 2009 placing it's PE at 8. This sector may not see the 15+ PEs of the past decade, but I'd expect some expansion to the 12 range or a 50% gain. CVH is now the 5th largest position of the Growth Fund at 4.2% of the portfolio following an added purchase yesteday on the HUM earnings. CVH was a $60 stock when 2008 began so getting back to $15 isn't that exciting, but I wouldn't expect this sector to return to its old highs. Too much scrutiny over the next 4 year...