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CIF Sector Update Report (Spring 2014)

Sector _____Health Care_______ Analyst:___Mason___Yang_

Presentation Date:___March 26__

Review Period:Start Date: _____March 19_____ End Date:___March 26_

Section (A) Sector Performance Review

(A-1) Sector Performance Relative to SP500

HC

Ticker Current Beg. Stop-loss Target

% Capital

# Shares Current

vs. Sector

vs. S&P 500

Price Price Price Price Gain Value

S&P 500 $INX 1857.44 1860.77 -0.18%

Sector ETF XLV $57.53 $59.46 -3.25% 4360 $250,830.80 -3.07%

Current Holdings

BMY $51.04 $54.74 -6.76% 530 $27,051.20 -3.51% -6.58%

One-Month Price Chart of HC Sector:

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One-Month Price Chart of S&P500:

In the past month the industrial performance has been moving up and down following the

S&P 500. However, the HC sector was slightly underperform compare with S&P 500 index.

The overall market is not doing so well mostly due to the intense situation between the

Russian and Ukraine. There is two major market down fall happened in March 3ed and the

16th. In March 2, Russian troops took over Ukraine’s Crimean Peninsula and the global stocks

fall hard due to the threat of war in Ukraine. On March 15th the market had a big drop on

fears related to China’s fragile shadow banking system. On March 17th the Marker had a

solidly market growth due to U.S dollar became stronger against the Japanese Yen . The

Healthcare sector is having a really bad market performance recently mainly due the March

31 is the Healthcare reform Act deadline and the lower than expected enrollments in the

health insurance exchange. However, before March 20th the sector had a good market gain

due the increase number of people sign up for the healthcare act even it was still under

expected enrollments.

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(A-2) Big Sector Movers

Two Largest Sector Gainers from Recent One Month:

Wellpoint Inc. (WLP)

On March 13, Wellpoint Inc. announced that it will conduct a live webcast of its investor

conference on the 21th. The meeting is host by the CEO, Joseph Swedish and all the

interested are invited to listen to the webcast on their website. On March 21, the company

released its regulation Disclosure, Financial Statement and Exhibits. WellPoint, Inc. also

released its earnings outlook and provided detailed financial guidance for the investor. Both

even has significantly increased invertors confidence which lead to a stock price increase.

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UnitedHealth Group Inc.(UNH)

On March 14, Moody’s rates

UnitedHeath’s new shelf registration –

senior debt at Aa3.

On March 21, a news reported that there

are four insiders sold UnitedHealth Group

stock within one month and three of

these four insiders decreased their

holdings by more than 10%

The rating helps firmed investors’

confidence and help the stock price

increased greatly. However, the negative

news broke the increasing trend of the

stock.

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Two Largest Sector Losers from Recent One Month:

Tenet Healthcare Corp. (THC)

Tenet Healthcare Corp. has been extremely underperform and witnessed a significant price

decline in the past four weeks. The company released its 8-K on March 5th, which triggered the

falling of the house of cards. The statement indicated its negative earnings estimate revisions for the

current quarter and the current year. In the current quarter, Tenet has seen 9 downward estimate

revisions versus no revision in the opposite direction.

Alexion Pharmaceutical, Inc. (ALXN)

Alexion’s earning is heavily rely on its only one approved drug, Soliris, which treats a rare

genetic blood disorder. Soliris, appears to fall under the purview of congress’ crusade against

high- cost treatment and now the company is forced to reduce the commercial price of the

drug. However, the company can only reduce the price of Soliris not much because the cost of

develop the drug must be recover.

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Two Largest Sector Gainers from Recent Three Month:

Forest Laboratories Inc. (FRX)

Actavis plc (ACT)

On Feb 18, the world’s second- largest generic – drug maker, agreed to buy Forest

Laboratories Inc. (FRX) for about 25 billion. The investors believe this acquisition is beneficial

for both the companies which lead to a huge price raise for both companies. The purchase fits

Actavis’s desire to expand in branded pharmaceuticals and become less focused on generics

drugs.

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Two Largest Sector Losers from Recent Three Month:

Celgene Corp (CELG)

Zoetis Inc. (ZTS)

Zoetis was falling 6.62% on Feb 11 after the company state that 2014 earnings and revenue

would come in below analysts’ estimates.

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(A-3) Two Largest Stocks in the Sector

Johnson & Johnson (JNJ) - 12.21%

The Arkansas Supreme Court reversed a $1.2 billion judgment against Johnson & Johnson on

Thursday, finding that the state attorney general erred by suing under a law that applied to

health care facilities, not drug companies.

Pfizer Inc. (PFE) – 9.11%

On March 3rd, Pfizer is hoping to obtain Food and Drug Administration approval to market

its top-selling cholesterol-lowering drug Lipitor over the counter. Which mean the drug’s

over-the-counter version claim that consumers cannot necessarily be trusted to take the

drug appropriately without a physician’s guidance.

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(A-4) Short-term (up to Three Months) Outlook of the Sector

The short – term future of the health care sector is heavily depends on the outcome of the

HealthCare Reform Act. But even as today there is still no certainty about how the reform act

will cause the market. There are some issue that are still waiting for the Supreme Court’s

ruling since every state has different reaction to the reform act. One thing for certain is that

the health care act will shuffles the market share of the insurers and increase the competition

within the market. The short term future for biotech doesn’t look good base on the current

sector over view. Big Pharma’s research and development are strongly rely on strong cash

flow form current product. Under the current government regulation on pricing and genic

drug, it doesn’t favor on Biotech Company’s side.

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Section (B) Sector Holding Updates

Company #1: Bristol – Myers Squibb Company (BMY)

Date Recommended: 02/28/2014

Date Re-evaluated: 03/25/2014

(B-1) Company Updates and Stock Performance

Company Update

On March 4th, the company announced that the company is planning a phase-three trial of its

drugs niolumab and Yervoy to treat lung cancer. The company stock rose nearly 6% on the

news. On top of that, BMY has a good result on its anti0PD1 cancer immunotherapy program

over recent published long term survival data on March 6.

On March 19, BMY was accused in a lawsuit by Hawaii of failing to disclose that the blood

thinning drug Plavix has little effect on 30 percent of the population and put patients at risk.

Relative Performance

1-Year Price Chart

Comment on performance of Stock #1 relative to the sector ETF and SP500.

Bristol – Myers Squibb is underperformed health care sector by 2.46%, also

underperformed S&P 500 6.2%. This is mostly due to the uncertainty cause by

the health care reform act and recent lawsuit that is happening in Hawaii.

Compare with the original report period the price has drop, but there is strong

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evidence that the stock will bounce back, since the company has couple medical

breakthrough that is going be very beneficial to the company’s earnings.

(B-2) Valuations, Estimates and Recommendations

Original Analysis

Ratio Analysis Company Industry Sector

P/E (TTM) 35.10 32.51 32.95

P/S (TTM) 5.47 6.70 7.37

P/B (MRQ) 5.88 6.24 6.15

P/CF (TTM) 23.96 22.22 21.89

Re-evaluation Analysis

Ratio Analysis Company Industry Sector

P/E (TTM) 32.99 31.59 31.93

P/S (TTM) 5.16 5.04 5.68

P/B (MRQ) 5.53 6.12 5.99

P/CF (TTM) 22.61 22.10 21.73

The P/E, P/S, P/CF ratio of BMY all decreased during the review period while ratios for

industry and sector all decreased as well while all changes are really minor. The changes are

mostly due to the stock price decrease during the period.

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Historical Surprises

Original Analysis

Re-evaluation Analysis

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Comment on the changes:

There are no changes.

Consensus Estimates

Original Analysis

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Re-Evaluation Analysis

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Comment on the changes:

Overall, consensus estimates for revenues have slightly declined since the original

recommendation. However, there is a slightly increase on the Year Ending Dec – 15 estimates.

Which means the analyst has more faith in the company’s future performance rather than

the current. The earning has slightly increase since the recommendation.

Estimate Revision Analysis

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Original Analysis (02/28/2014)

Re-Evaluation Analysis

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Comment on the changes

The Re-Evaluation Analysis has become really moderate, since there isn’t much

revisions to their revenues and earnings estimates.

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Analysts’ Recommendations

Original Analysis

Re-Evaluation Analysis

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Comment on the changes

There is no changes in the analyst recommendation

(B-3) Technical Indicators

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How have the two sets of technical charts changed from the ones in the original report? Are

findings from technical analysis supportive of your other findings?

Due to the short period, there is no noticeable change in 2 year – chart. However, in 6 month – chart it

seems that two moving average is about to cross each other which was not noticeable in the original

report.

Section (C) Sector Holding Recommendations

I recommend the class make no changes in Bristol – Myers Squibb. Since

it’s only been a very short time since the original decision was made, and there

isn’t any significant changes on the stock. Also as the analysts are still very

strong on hold.

Company Name

Ticker Symbol

Date

Recommended

Date Re-

evaluated

Recommendation

Sell

Adjust

“Target Price”

Adjust “Stop-

loss Price”

Bristol – Myers Squibb

Company (BMY)

BMY Feb 28 2014 Mar 26 2014 No No No

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References

Charts from

Yahoo! Finance finance.yahoo.com

Reuters. www.reuters.com

Selected Sector SPDRs. http://www.sectorspdr.com/sectorspdr

Current even and news articles:

The Zacks Analyst Blog Highlights:Bristol-Myers Squibb, Pfizer, Alexion Pharmaceuticals, Gilead

Sciences and AGCO. PR Newswire March 23 2014

http://www.prnewswire.com/news-releases/the-zacks-analyst-blog-highlightsbristol-myers-

squibb-pfizer-alexion-pharmaceuticals-gilead-sciences-and-agco-252234301.html

Biotech Weakness Makes Indices Sick, MV PRO March 12 2014

http://www.minyanville.com/special-features/daily-recap/articles/home-sales-china-

renminbi-manufacturing-

biotech/3/24/2014/id/54309?camp=syndication&medium=portals&from=yahoo

Obamacare Website Sees 1.1 Million Visits Before Deadline, Alex Wayne, Bloomberg March 25

2014,

http://www.bloomberg.com/news/2014-03-25/obamacare-website-sees-1-1-million-visits-

before-deadline.html?cmpid=yhoo

10 Things to Know for Today, ABCNEWS, March 3 2014

http://abcnews.go.com/US/wireStory/10-things-today-23031391