HCA Healthcare Chairman & CEO Milton Johnson, center, rings the New York Stock Exchange opening bell.ASSOCIATED PRESS
After a correction, it is extremely unlikely that the best stocks to own are the same as before. Wayne Himelsein, one of my managers, has been looking for stocks showing signs of new leadership. This week he’s recommending Healthcare, Inc.
Ken Kam: You are recommending Healthcare, Inc. today?
Wayne Himelsein: In continuation of my shift to new market leadership, today I want to introduce one of my new favorite stocks, Healthcare Inc., or formally, Healthcare Corporation of America.
As generic as the company name sounds, it’s upside light is shining bright. The name reminds me of a restaurant I used to go to in New York City called EAT; food was excellent. Likewise HCA is a star, and I will share why.
Kam: That name certainly does leave some mystery on the table. I was always taught “don’t judge a book by its cover,” so please divulge what you see inside this book?
Himelsein: I love that old adage for an analogy! I’m going to run with it. Every stock is in some way a book, and until we “read” it, we don’t know enough about it.
Sometimes you get a little insight reading the first chapter, you can certainly get an indication as to the author’s style, and how adventurous or gripping the rest of it might be.
But then there’s those books that even the first chapter does not provide enough of an indication, where you have to keep on reading to really get a feel for the intensity of the story. Particularly with authors that like to greatly develop the characters.
This idea mirrors stocks in terms of timeframes, which I have referred to in prior discussions as adjusting the “lens”, which should sometimes be swapped for wide-angle.
The first chapter of the book might be the close up view, such as how a stock performed during recent market turmoil, whereas getting deeper into the book is the wider angle view, demonstrating how the stock has behaved over longer periods of time.
Photography, is a bit different to a book, as each lens presents an equally interesting, but different, frame, whereas with a book, the deeper you go, the more you capture both frames. Stocks should be photographed for framing or near term decision-making, but read further for gathering more information.
Kam: I like those analogies. So what do you see in HCA over the short term?
Himelsein: In the short term, I refer back to one of the ideas I have frequently talked about, which is standing up in the face of everyone around collapsing.
Just take a quick view of how this stock has performed in October and November, and you would say, what market issues? Really, was there a correction somewhere? HCA has absolutely no idea, it’s just chugging along, more so, literally made a new high in each of October and November. Ever since beating earnings in July, and a related price leap, the stock has just cruised along unscathed. There was mild dip in late October, but it came screaming back in just a few days.
It’s a lot like a playing child who keeps racing their toy car, and with a big smile on his face, while the parents, in close proximity, are screaming back and forth about this and that. The child looks up for a second, notices dad disgruntled face, and within in a moment, is back inside fantasy town, racing down the main road with rumbles coming out of his mouth. HCA doesn’t care about all the raucous, it continues playing and smiling.
Kam: Interesting. I think the child might still be hearing the parents, but I get your point, his playtime is for the most part undisturbed. So what about reading further into the book?
Himelsein: This stock has a relatively “young” history in that it started trading a mere 7 years ago, in early 2011. That said, after a few months of not much happening, once it started to get going, it really went, climbing for the next four years on a smooth and steady incline through its highest high made in late 2015.
This marked the end of its so called uptrend, and began a new phase of the stock’s life. It spent a couple of months descending, more so, letting out some air from its previous multi-year run, until early 2016, at which point it said “I’m done” in multiple ways.
It was done with its short reversal, and it was done climbing. For the next full two years, and up until early 2018, it literally did nothing, moving gently up and then down, but overall sideways, in multi-month giant waves.
Its undulations, however, were interesting in one beautiful way. The troughs of the waves were roughly each one year apart; with one in Nov of 2016 and the next in Nov of 2017. The one year apart, in and of itself, means less than nothing, other than saying it was a “large” time frame.
Kam: There are not a lot of data points to read much into. But, so then what?
Himelsein: The interesting part of the wide frame view, which you would only see if you read deep into the book, was that each bottom, or trough, was lower than the prior, as if the stock was taking year after year to build a stronger and stronger base. That, and that alone, is noteworthy.
Kam: So, what made you wait until now?
Himelsein: Because there is a BIG difference between building a setup that indicates strengthening, and actually confirming that this is what it was doing.
It’s one thing for the book to build up a character over the first few chapters, leading you to believe the character will play a major role, and quite another for you to read the 8th chapter, and witness the main character murder his father to run off with his step-mom. That’s confirmation.
Kam: What is HCA confirming?
Himelsein: The confirmation with regards to HCA was how it took off after breaking out of that 3 year sideways undulation. After the first few months of 2018, and might I add, being completely unfazed by the Feb 2018 market correction, it made higher and higher highs till eventually exploding on the upside. Like a rocket it shot up to new heights in July, and has since continued powering upward. HCA almost completely ignored the October-November turmoil. It is going up, and nothing can stop it.
My Take: Just as the best poker players win by reading other player’s “tells,” Wayne Himelsein evaluates the market’s “tells” to identify the best stocks to own.
Wayne’s Logica Focus Fund (LFF) has a 18+ year track record at Marketocracy. Over that period, Wayne’s model averaged 11.86% a year which compares well to the S&P 500’s 5.44% return for the same period.
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