Dr. Paul Price expects the 2014 implementation of Obamacare to provide a major stimulus for physicians to order more lab tests, as at least 30 million currently uninsured people gain coverage. While the Market Shadows’ Virtual Value Portfolio already holds Lab Corp. (LH), and the Virtual Put Selling Portfolio (below) sold one LH put, Quest Diagnostics (DGX) – the industry leader – is missing in action. That’s about to change. The drop in DGX’s price is giving us an opportunity to either buy some virtual shares, or in our case, SELL one put.
DGX shares fell last week after Q4 earnings and revenues came in light. The stock had reached an all-time high of $64.87 in October. DGX closed at $58.26 on Tuesday, an area of solid technical support.
Paul likes this company at current prices because 1) management has initiated cost cutting moves designed to save $500 million by 2014, 2) the company has solid financials, and 3) Quest’s current yield is around 2%. This year’s earnings will be around $4.46 /share, giving DGX a 13.1 P/E. Quest’s longer-term median P/E has been 16x. Paul noted,
Share price stability and earnings predictability are each among the highest ranked in Value Line’s 1700 company main research universe. DGX shares have outperformed 70% of that group over the most recent decade.
This is a classic case of being able to buy low simply because nobody can cite a near-term catalyst to get the shares moving. The fear of ‘dead money’ has brought Quest back to an extremely low-risk entry point… In a supply and demand market, the best buys are issues where few people can make a case for instant action.
Paul’s going to sell one DGX August $60 Put in the Market Shadows’ Virtual Put Selling Portfolio (below) on Wednesday, Jan 30, 13. The price of the DGX put is $4.30 (Jan 30). For non-option investors, Paul likes DGX at the current price, $58.37.