TRADE INSTRUCTIONS
Date: March 24, 2017
Name: Danaher Corporation
Symbol: DHR
Type: Short Sale or Long Put
Limit: N/A

I haven’t issued a new buy recommendation this week, given the stock market’s mounting concern over the GOP’s inability to pass its own health care bill. For that reason, I thought this might be an opportune time to take a short position in a health care company that appears fully valued and at risk of taking a quick dive if investors get nervous and start dumping high-quality names like Danaher.

Remember, 3TL stand for 3-Time Loser, which means this is a stock that I think is at risk of declining in value soon so the appropriate trade would be either a short sale or long put, but DO NOT GO LONG! And since you can play it a number of ways with put options in terms of strike prices and expiration dates I’m leaving it up to each of you to decide what, if anything, you want to do with it.

For that reason, it will not be tracked in our portfolio. This trade is not a substitute for our usual buy recommendation but is simply an extra “bonus pick” for you to consider. Here’s why this company qualifies as a 3-Time Loser according to my system.

TRADE RATIONALE
First, DHR has the lowest possible IDEAL score of 0 (on a scale of 0 – 10), meaning it appears grossly overvalued from a long-term perspective based on dividend yield, cash flow, and relative valuation.

Second, DHR has been trading above its 50DMA since the start of the year but has flattened out since its lower Bollinger Band crossed above the 50DMA a month ago. Meanwhile, its share price is close to crossing beneath the 50DMA so DHR appears to be weakening from a technical perspective.

Third, its momentum seems to be dying out. Seven of the past ten days have been negative after 18 of the previous 23 days had been positive. Now priced at 20x forward earnings with a PEG ratio of 2.3, DHR would need to drop down to $80 (an 8% decline from its current price) to be fairly priced based on its rate of earnings growth.

One more overlooked aspect of Danaher’s revenue stream is its Water Quality division, which contributes about $2 billion annually in revenue. If Trump’s proposed cuts to the EPA are approved, Danaher may need to revise forward guidance downward in its next quarterly earnings report due the third week of April. For that reason, options traders may want to take a look at the puts expiring on April 21.

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