All of the stars have aligned for near-term strength in a sector traditionally considered "boring" or "safe" for investors.
Long-term investors are staying cool and are salivating over certain stocks, praying for a sharp correction. But which stocks should you look at?
One sector has all the stars aligned for near-term strength.
The key is to find strong subsectors within strong major sectors. Right now, healthcare providers are the place to be. Here's why…
We're in the healthcare providers sector's Prime Profit Period.
The Oxford Club's Emerging Trends Strategist, Matthew Carr, researched, analyzed and spent countless hours identifying the strongest time frames of the year for each sector.
Below is just a snippet of Matthew's research comparing the performance of various sectors during their Prime Periods to the performance of the S&P 500 and Dow 30 since the year 2000.
This research is what helped him outperform the stock market by 662% last year.
I promised to blur the other sectors' Prime Profit Periods even though it's just a fraction of the "secret sauce."
Focus on the green area showing that healthcare providers averaged a 9.98% return from the beginning of March to the beginning of June. That's more than triple the return of the major market averages and we are only in the third week of this Prime Profit Period.
Healthcare's relative strength
To keep it simple I'll focus on the 6- and 12-month performance of the 9 major S&P sectors. Below you can see that healthcare has taken the lead as the top-performing sector in both time frames.
When top-performing sectors take the lead, they tend to continue to lead the market higher for years. This is because institutions have billions of dollars to invest in sectors and they can't make their investments all at once. If they do, they'll run the prices too high too fast.
In other words, don't hesitate to buy into strength out of fear of being the last one in before the big crash. That fear is what keeps many investors from participating in the leading sector's biggest gains.
Next, let's consider the megatrend in the healthcare arena. The sector includes hospital management firms, HMOs, biotechnology, and medical products.
Baby boomers started hitting the retirement age of 65 in 2011. The biggest wave of baby boomers only just turned 50 at the same time. The megatrend is just getting started. It's no surprise that this sector is getting bigger and bigger in terms of revenue and market capitalization.
Consider that the S&P 500 is a "market cap weighted" index where stocks with bigger market caps have a bigger index weighting.
The more the stocks go up, the bigger the market cap gets. The bigger the market cap, the more representation the sector has in the S&P 500. As you can see below, the healthcare sector gained over 3 percentage points in S&P 500 sector weighting over the last 3 years.
To give you an idea of how sector weightings can change during megatrends:
• In 2000, the energy sector represented close to 5% of the S&P 500, but in 2008 it represented more than 16% of the index.
• In 1993, the tech sector represented close to 5% of the index, but in 2000 it actually held a 33% weighting.
I clearly remember investors who were afraid to buy into energy strength in 2005 as well as those afraid to buy into strength in technology in 1996-1997. The stocks had just run too far for everyone to feel good about claiming their share of global economic growth. You don't want to be that person.
Fear? Bring it on!
The final star that's aligned here is the very fact that some people truly are afraid.
When markets mature, investors tend to buy into more defensive sectors. Instead of buying the young companies or new-growth sectors, they buy into sectors that will always be around.
They buy sectors that sell products and services that are essential, even in economic downturns. They buy sectors that are less sensitive to the business cycles and fluctuations.
They buy … the healthcare sector.
When investors become more cautious, this sector will get even more attention.
At historic market tops it's been tough to jump out of the high-flying tech stocks or energy stocks and buy something as "boring" as healthcare. But because of the baby boomers, this time the healthcare sector is where the strength lies.
Market corrections are just a part of a strong bull market. Focus your attention on the strongest subsector (healthcare providers), within the strongest sector (healthcare), within the strongest global market (the US) during the sector's strongest Prime Profit Period.
Chris Rowe is a member of the Investment U Research team.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.