Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Medical Device ETFs Flash Bearish Technicals, Fundamentals Post-Obama Win

By

There is no denying that stocks and ETFs have a tendency to overreact following elections.

PrintPRINT
And as we reported earlier this week, the road investors face with ETFs such as IHI and XHE is made even more difficult for a couple of reasons. For starters, most investors surmised that health care stocks would benefit from an Obama re-election. That might ultimately be the case for ETFs such as the Health Care Select Sector SPDR (NYSEARCA:XLV) and the iShares Dow Jones US Healthcare Providers Index Fund (NYSEARCA:IHF). That will not be the case for IHI and XHE.

Second, and perhaps by virtue of assumption that an Obama win was supposed to be good for the health care sector at large, mainstream coverage of the medical device tax and the problems it can create for investors has been scant at best.

That is odd when considering the average market cap of the stocks in the Dow Jones US Medical Devices Index, the index tracked by IHI, was almost $14.5 billion at the end of September, according to iShares data.

Medtronic (NYSE:MDT), IHI's top holding with a weight of almost 11 percent, has a market value north of $42 billion. Intuitive Surgical (NASDAQ:ISRG), one of the great growth stocks of the past decade, has a market cap of just over $21 billion. In other words, IHI and XHE are not home to small, unknown companies.

Medtronic has said the tax could hurt its future investments. Stryker (NYSE:SYK) and Zimmer Holdings (NYSE:ZMH) have already announced layoffs related to the tax. The two are IHI's fifth- and sixth-largest holdings, combing for 11 percent of the ETF's weight.

In September 2011, Advanced Medical Technology Association forecast the loss of 43,000 jobs related to the Obamacare tax on medical device makers. Even if the number works out to just half that, 21,500 lost jobs is 21,500 too many.

It is unlikely IHI and XHE's constituents will benefit because analysts will realize any increase in profitability, saying that scenario even arrives, will have come by way of cost cuts, not top-line growth. In other words, Friday's bullishness in these two ETFs is a sucker's rally.


Editor's Note: This content was originally published on Benzinga.com by The ETF Professor.

Below, find some more great ETF and market content from Benzinga:


How To Spot a Market Bottom

Is Apple Forming a Bottom?

China: Economy Improving


by Jeff Uscher

Twitter: @Benzinga

Benzinga Pro covers this and all market news in real time. Get your free trial here.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE