A Trio of Earnings Reports: The Good, the Bad and the Ugly

By Jim Pearce • February 8, 2017

Three of our portfolio holdings released quarterly results yesterday. All of them operate in the volatile healthcare sector, made even more skittish by the Trump administration’s uneven approach to replacing the ACA. For that reason, it appears institutional investors are quick to exit positions that shows any sign of weakness as evidenced by the immediate reaction to these reports.

It was a good day for Cardinal Health (CAH), which beat its earnings estimate and briefly soared above $79 before ending the day at $77.76. With only two weeks left in our target holding period, I am raising the stop price on CAH to $76 to lock in half of our target gain.

The news was considerably worse for Gilead Sciences (GILD), which reduced guidance for sales of its flagship portfolio of Hep-C drugs. As a result, GILD opened this morning at $67.14, almost 10% below yesterday’s close. If GILD closes below its stop price of $68 today then I will issue a sell alert on it tomorrow. If it does not, then we will watch it closely to see if it can mount a recovery before the expiration of its target holding period on May 15.

USANA Health Sciences (USNA) posted a profit that came in on the low end of guidance, but that was all it took for it to suffer an 11% drubbing this morning. However, its opening trade at $54.35 is still slightly above our stop price, and it trades on considerably less volume than GILD so the worst may already be behind it. Nevertheless, if USNA closes below $54 then I will sell it.

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CD

02/08/17 ‐ 11:14am ET February 8, 2017 at 11:14am ET

Good Morning, I am quite new to trading stocks. I purchased some CAH on Jan.6th at $74.95. I am not sure what it means when you say: I am raising the stop price on CAH to $76 to lock in half of our target gain. Can you please explain? Does that mean ‘Buy up to $76’? Or was that an Options trade? Thanks for your time!

Jim Pearce

02/08/17 ‐ 11:29am ET February 8, 2017 at 11:29am ET

No; a stop order means you want to sell a stock if its price drops down to that level. Now that CAH is above $76, a stop order would be triggered if it falls to that price or below. We bought it at $70 with a target price of $82, so if our stop gets executed at $76 then we would capture half of our target gain.

Roger Dehring

02/08/17 ‐ 11:14am ET February 8, 2017 at 11:14am ET

Kudos to all those hard working employees at CAH for bring you those gains, Jim,

Roger

Derek: Las Vegas, NV

02/08/17 ‐ 11:34am ET February 8, 2017 at 11:34am ET

Good morning BA,

Why sell? I think it’s better to set a stop loss at $76 like Jim recommends. CD would still earn a profit it drops back down. Why risk losing the potential to reach the target price?

Derek

black arrow

02/08/17 ‐ 11:50am ET February 8, 2017 at 11:50am ET

DEREK IS SMARTER THAN I I WILLINGLY ADMIT SO CD YOU MAY WANT TO GO WITH HIS IDEA – YOU DECIDE WE ARE JUST TRYING TO HELP. FOR ME ITS THE TIME OF YEAR TO ACT , I FEEL LIKE HE WHO HESITATES IS LOST. EARLIER I MADE $365 IN PROFITS ON MARIJUANA STOCK SYMBOL GWPH AND MORE ON GLD .
DONT THINK I AM SHOUTING OVER CAPS OK. IN MY NAVAL ARCH DAYS WE WERE REQUIRED TO WRITE IN ALL CAPS. HAHA
YOU CANT GO WRONG LISTENING TO DEREK; AND OUR LEADER JIM PEARCE ALWAYS SAYS HE CANT FIND FAULT WITH SOMEONE FOR TAKING A PROFIT.
HAVE A GREAT DAY- YOU ALSO DEREK

Maria R

02/08/17 ‐ 4:12pm ET February 8, 2017 at 4:12pm ET

Thanks for the alert. I exercised my protective put of GILD.

Rick W.

02/08/17 ‐ 6:21pm ET February 8, 2017 at 6:21pm ET

Jim,
I’m really having a hard time pulling the trigger on selling GILD right now. It is outside its lower Bollinger Band on both the daily and weekly charts and has bounced back almost every single time, especially on the weekly. It is also oversold on the MACD and RSI daily chart and oversold MACD and close to it with RSI on the weekly chart.
If this company a fundamental shipwreck or are there animal spirits involved here? I am really, really torn on this one. Thanks.
Rick

Jim Pearce

02/09/17 ‐ 9:52am ET February 9, 2017 at 9:52am ET

Hi Rick. By rule, I have to sell any SW holding if it closes beneath its stop price, but you don’t have to. I am also torn on GILD, and will continue to hold it in the PF Growth Portfolio since that has a much longer time horizon than this trading service does. At this point either GILD has a skeleton in the closet that has not yet emerged (e.g., accounting fraud, etc.), or it is just plain oversold. I also believe it should acquire a cancer immunotherapy company to carve out a sizable niche in that space before its too late. So if you don’t mind holding onto GILD for a while, I think you will eventually be rewarded but no idea how long before its board of directors forces a move in that direction.

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