Last week was more of the same for most sectors, save two... energy, and healthcare. The former was uncharacteristically strong in comparison to the past few months for the week ending on April 24th, 2010, while the latter was uncharacteristically weak. Both of these new trends, however, may be here to stay a while.
Energy Stocks Starting to Rally With Price of, Demand For Oil
The S&P 1500 Energy Index led the way last week with its 4.3% upward move. At the heart of the strength were oil/gas equipment services stocks like National Oilwell Varco (NYSE:NOV) and Baker Hughes (NYSE:BHI), the latter of which posted a 14% gain over the five trading sessions.
The strength itself wasn't a response to actual results relative to last year's earnings. Indeed, Schlumberger (NYSE:SLB) saw a 28% dip in its first quarter income, according to numbers released on Friday, April 23rd, 2010 .
Rather, much of the industry's reignited investor interest stemmed from low expectations, and improvements in the industry's foreseeable future. Schlumberger, for instance, topped estimated earnings of 61 cents per share by actually earning 62 cents. Simultaneously, the company affirmed its 2010 earnings guidance posted earlier in the year; Standard & Poor's upgraded SLB to a 'buy'.
The broad consensus is that the energy market - and the oil market specifically - is poised to drive demand for oil-based services. Aside from the fact that drillers have been able to price and sustain crude oil at $80 per barrel for several weeks now, the ongoing revival of consumer spending and industrial productivity generally goes hand in hand with greater energy usage (particularly for transportation needs).
And, investors are starting to believe it. The energy sectors' stocks - laggards for the better part of the last twelve months - not only outpaced every other group last week, but have been bullishly accelerating out of their funk over the last four weeks. Baker Hughes and National Oilwell Varco led that longer-term charge as well.
Healthcare Stocks Weakening in Shadow of Reform Bill
The healthcare sector was everything the energy sector wasn't last week, with the S&P 1500 Healthcare Index losing 2.0%. There was nowhere to hide within the industry either... biotechnology, healthcare equipment, pharmaceuticals, and healthcare supplies stocks were all off significantly.
As for the most cited reason for the new weakness, President Obama's healthcare reform bill is getting most of the blame.
Though not three weeks old, affected companies are just now completing their number-crunching.; it doesn't look encouraging. Amgen Inc. (NASDAQ:AMGN), for instance, suggested the healthcare system's overhaul will cut between $200 million and $250 million off its bottom line in 2010 alone. For perspective, the biotech company earned $4.6 billion in 2009. AMGN shares struggled despite the company beating its forecasted earnings per share of $1.23 with actual earnings of $1.30. Amgen only earned $0.98 per share for the same quarter a year earlier.
Medical equipment manufacturer Baxter International (NYSE:BAX) also saw its share sink on healthcare reform worries. Despite a 2% lift in its first quarter income, BAX fell from $58.95 to $51.13 on Thursday, April 22nd, when the company announced its reform-based revisions. Baxter International expects the healthcare system's changes will take $80 million of the bottom line for 2010. In 2009, Baxter earned $2.2 billion.
Whether or not the healthcare industry's projected reforms costs are accurate remains to be seen - there's a fiscal upside to the overhaul that doesn't seem to be considered in all cases.
There's little question, however, that investors are taking the overhaul's dire consequences at face value, which is sending these stocks lower whether the outlooks are accurate or not. And, that's a train would-be buyers may not want to step in front of just yet.
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